by Adrian R Bell and Dina Ghanma

“Some people believe football is a matter of life and death. I am very disappointed with that attitude. I can assure you it is much, much more important than that.” – Bill Shankly

If we are to agree with the great Bill Shankly, then we would not be surprised that a seemingly ‘irrelevant’ event during an election, such as a football match, could influence a national referendum.  A number of academic studies have indeed found that a causal linkage can be found between sports events and elections.  Why would this be the case?  It can be explained by human mood, or what we now term ‘Sports Sentiment’.  We speculate below that some interesting Euro 2016 results from England, Northern Ireland and Wales could influence the outcome of the EU referendum. We discuss what reaction would follow from staying in the competition, or coming home before the postcards!  Finally, we have to be realistic in accepting that it will be too difficult to truly know whether a relationship exists given the limitations discussed here, but it’s interesting to talk about the ‘what if?’…

Of the better known research on ‘Sports Sentiment’ is Edmans et al’s Journal of Finance (2007) paper, ‘Sports Sentiment and Stock Returns’[1]. The question they posed was whether or not the stock market reacts to changes in investor moods, with ‘international sports results’ being the primary ‘mood variable’. The paper indeed focuses on football (or “soccer”, as some might choose to less accurately call the sport), and presents the null hypothesis that markets are efficient, hence uninfluenced by the outcome of the “irrelevant” football matches. The Econometric model controls for some of the perplexing stock market “anomalies”, including the Monday effect, and investigates the ‘football/stock prices’ relationship in 39 countries.

The bottom line… is that they found a strong ‘loss effect’ whereby abnormal negative returns are observed the day after a sporting loss, with this loss more prominent for smaller stocks and after more important matches.

‘For example, a loss in the World Cup elimination stage leads to a next-day abnormal stock return of −49 basis points’. (Edmans et al, 2007)

It is interesting to note that this effect is not mirrored after big wins, suggesting that bad results have greater power over an investor’s financial decision-making whereas good results are not as impactful.

So, if it follows that ‘Sports Sentiment’ can affect investors’ mood with regards to finance and the economy, it might be fair to propose that a similar effect manifests in voters with regards to politics. The dilemma becomes deciding the intuition: would a good Euro 2016 result for the UK lead to voters keeping the status quo and voting ‘Remain’, or would it lead to a boost in national self-confidence enough to trigger a ‘Leave’ vote?

Does the research literature help us with this? In 2010, Healy et al published a paper titled ‘Irrelevant events affect voters’ evaluations of government performance’[2] where they looked at the relationship between the results of college football matches and the outcomes on national elections. They summarise saying, ‘We find clear evidence that the successes and failures of the local college football team before Election Day significantly influence the electoral prospects of the incumbent party, suggesting that voters reward and punish incumbents for changes in their well-being unrelated to government performance.’ If we proxy this to the Euro2016/Referendum context, the ‘incumbent’ would proxy to remaining in the EU, which backs the intuition that a good football result would support remain and a bad result would support a leave vote.

Agreeing on what our intuition should be is not the only difficulty we face in such research. Another difficulty is the lack of reliable polls that truly reflect voters’ intentions. Also, the few polls that are available are not timed compatibly with the Euro matches for us to draw credible relationships between the two. For instance, the BBC reported on the 12th of June that very few polls had been published in the last week[3], which makes it nearly impossible to gauge voters’ sentiment with a decent level of accuracy. However, one possible proxy would be to use the betting odds before, during and after each match.

We would also need to think differently about the matches for each of the ‘home’ teams. Perhaps the English matches would be the most significant simply because of England’s larger population, which we would assume means the presence of more supporters and hence the most influence on the result. It’s also not clear how the England vs. Wales match today would play out in the scenario, as here, the UK is playing against itself.

It’s also clear that other events could influence voter preferences towards ‘Leave’ or ‘Remain’, such as seemingly authoritative statements from politicians on pensions, family income, immigration and much more. It would be very hard to separate out all this noise from the driving causality of a football match. We now also have an added complication with our investigation – the football game is not even the front page news story! Football hooligans wreaking havoc in Marseille and now Lille has taken precedence, and this hideous violence has even provoked a threat from UEFA to disqualify both England and Russia if any further problems occur. Indeed, England being thrown out of the European competition might have its own greater effect on the referendum, too – this surely giving further support for a leave vote.

We will find out whether any of the UK’s home teams will survive the first round of the Euro eliminations or if they will pack up and head home before the Referendum being held a week from today. The revelation of all the results, football and referendum, might help us take a step forward in our research – as hindsight normally helps our analysis.

For now, enjoy the match, and may the best team win!

Dina Ghanma is a final year student from Amman, Jordan, studying the BSc Finance and Investment Banking course at the ICMA Centre. She was the recipient of the 2015 Chancellor’s Award for Best Performance at Part 2, and the winner of the 2015 Henley Challenge.

[1] EDMANS, A., GARCÍA, D. and NORLI, Ø. (2007), Sports Sentiment and Stock Returns. The Journal of Finance, 62: 1967–1998. doi:10.1111/j.1540-6261.2007.01262.x

[2] http://www.pnas.org/content/107/29/12804.full

[3] http://www.bbc.co.uk/news/uk-politics-eu-referendum-36271589