With the World Cup in full swing, soccer fans around the world have a lot riding on their home team’s success, but you don’t exactly need to be a sports fan in order to be invested in your country’s performance.

As Marketwatch reports, the stock market’s reaction (1) to World Cup results has been well documented over the years. Take the 2022 tournament, for example. During the elimination round, the global stock market fell by 4.6% while the S&P 500 dropped by 5.4%.

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Historically, stock markets tend to perform poorly during the World Cup, particularly during the “knockout” round of the tournament. But there’s a reason why investors in particular may want to support their home countries this time around, even if they aren’t avid soccer fans.

According to a 2006 study published by SSRN — which focused on World Cup tournaments from 1973 to 2004 — a participating country’s stock market tends to produce a significant below-average return (2) one day after its respective team loses in the tournament’s elimination stage.

Now, by that logic, this may lead you to believe that a country’s stock market would see gains after its team wins a World Cup elimination game.

“If that were the case there would be no net effect on the global stock market from this World Cup effect, since by definition there always is the same number of winning and losing teams,” Mark Hulbert reports for MarketWatch (3).

“But the researchers found no evidence of this second, positive effect. The implication is that, since there will always be a country whose team has lost, the global stock market should be a below-average performer throughout the World Cup.”

That result is reflected in another study, which discovered that during World Cup tournaments between 1950 and 2007, the U.S. stock market suffered an average loss of 2.6% (4).

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It may be hard to understand why a country’s stock market performance can be so heavily impacted by something as unrelated as the World Cup, but the explanation is quite simple.

As many studies have discovered, a person’s mood (5) can have a big effect on how they process information and make decisions. People are more likely to take risks and explore various solutions when they’re in a positive mood, as a good mood tends to encourage creativity.

“When we feel good, we’re more likely to take risks, embrace new ideas and engage in creative problem-solving,” according to an article from the Mindspa Mental Health Centre (5). “On the other hand, negative moods tend to focus our attention, making us more analytical and detail-oriented. While this can be beneficial for thorough analysis, it may also limit creative thinking and lead to more cautious, risk-averse decisions.”

With that in mind, it’s highly possible for fans of a losing team to suddenly become more risk-averse (6), panic sell certain assets or even pull back on buying shares of stocks entirely. When this behavior is collective, it can have a massive impact on the domestic market as a whole.

While this isn’t necessarily the way experts tell you to handle your portfolio if you want to build lasting wealth, it’s a real phenomena. So, before you go and base your trading off a loss, it’s a good idea to remember your personal investing goals and retirement timeline before making any rash decisions.

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Marketwatch (1); Papers Ssrn (2), (4); Morningstar (3); Themindspa (5); Emerald (6)

This article originally appeared on Moneywise.com under the title: Your country's World Cup loss could tank your portfolio the next morning — and a win wouldn't bring it back

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