Euro 2012: Fifa vs. Moody’s

posted by nwoods

It’s 2012, another year in which I can gorge upon a feast of world class sport. The Olympics, the Paralympics, the European Championships and god forbid another failed attempt by Andy Murray to win Wimbledon. The UK may be nearing a ratings agency downgrade but it’s not all bad and a glorious summer awaits.

I wonder what it’s like working in the City when a major sporting event is on. With targets to hit, demanding clients, every pound and every move under scrutiny, I bet they never get chance to scream “REF!!!!” across the trading floor.

Euro 2012 kicks off in 2012 but with ECB research showing inattentive trading during national football matches what impact for the Eurozone? (Image:Euro2012media.com)

Interesting then, that according to the latest bit of research from the European Central Bank, that’s exactly what happens. Its White Paper “The pitch rather than the pit – Investor inattention during FIFA world cup matches” looks at trading data during 2010 World Cup matches and draws some interesting conclusions. My favourite excerpts from the three key findings include:

First, we find strong evidence of decreased activity in stock markets during soccer matches at the 2010 World Cup. Trading activity dropped markedly, especially if the national team was one of the competitors. Compared to normal market circumstances, the median number of trades dropped by 45% if the national team was playing, while the volume dropped by around 55%.”

“Second, we show how goals scored by either team led to an even stronger decline in the number of trades and offered quotes. Also, we find that market activity was already significantly below the benchmark right before the match started, and continued to be lower during the 45 minutes after the match had ended”

 “Third, we show that also price formation was affected during the soccer matches, as the evolution of returns on national markets decoupled from those on global markets.”

Worrying stuff indeed! We all know that lots of research points to the financial benefits of hosting a major sporting event such as the Olympics or World Cup but does this latest study suggest a potential economic threat caused by investor inattention? With the European Championships scheduled for this summer could we finally see sport play a major role in shaping the Eurozone’s economic future?

Whats even more interesting is if you take the official FIFA rankings of those countries qualified (hence their likelihood of progressing further in the competition) and compare this with their respective credit rating:

Country  FIFA Ranking Moodys Credit Rating
Spain 1st A3
Germany 2nd Aaa
Netherlands 3rd Aaa
England 5th Aaa
Portugal 6th Ba3
Italy 8th A3
Croatia 9th Baa3
Denmark 10th Aaa
Russia 13th Baa1
Greece 14th Ca
France 17th Aaa
Sweden 18th Aaa
Republic of Ireland 20th Ba1
Czech Republic 29th A1
Ukraine 59th B2
Poland 70th A2

 

The above analysis not only raises conspiracy theories around the UK Government’s involvement in the appointment of Fabio Capello and hence its relatively robust economic rating but it also points to  potential problem for the PIGS, who’s traders according to form are likely to be inattentive for longer. With this in mind should any of the PIGS nations live up to their footballing prowess we could see the Eurozone put under even greater pressure.

Either way, I’m sure that having undoubtedly read the ECB’s latest research in great detail, both Merkel and Sarkozy will be praying that we don’t get a re-run of 2004. A Greece vs. Portugal final could be catastrophic!

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