Key takeaways:

• The World Cup often results in the host nation stock market outperforming

• Where a country football team loses a match, its stock market underperforms the following day

• Liquidity for a country stock market decreases when that nation is playing a match in the tournament 

Football fever is here! That means plenty of late nights and bleary eyes for fans across Australia. While football fanatics will follow what happens on the pitch, does the World Cup provide investors with any insights for the stock market?

It may come as a surprise to many, but history points to some pretty clear trends once the biggest sporting event in the world rolls around every four years. In fact, if the data is anything to go by, you might find yourself cheering on more than one team if you have a portfolio of international stocks.

Without further ado, here are the biggest stock market lessons from the World Cup.

1. Equity Markets of FIFA World Cup Hosts Tend to Outperform

An interesting statistic shows that countries hosting the World Cup tend to see superior returns in their local stock market before, and after the tournament. 

Across the last seven World Cups, the average MSCI country stock market index of host nations grew by 21.8% in the year leading up to the football showpiece. Across the following year, returns averaged 13.4%. In comparison, the MSCI World Index averaged returns of 4.3% and 9.5% respectively.

A notable exception to the above was Brazil, which was dealing with a political crisis. Otherwise, investment in infrastructure and real estate, as well as the effects of consumer spending and tourism flow through to listed stocks. 

Australia was originally a contender to host this year World Cup, which may leave fans and investors somewhat despondent. A World Cup hosting boost' for the ASX will have to wait a little longer. However, in four years time, the World Cup heads to North America. Could the US stock market achieve the same feat in 2026?

2. Bad Results on the Pitch Often Translate to the Stock Market

A phenomenon known as the World Cup effect, investors tend to react emotionally in the stock market if their country loses its World Cup matches.

A joint study from earlier this century produced by the London Business School, University of Colorado, and Norwegian School of Management focused on Sports Sentiment and Stock Returns. 

Analysing more than 1,100 football matches dating back to 1973, the study noted that where a country football team lost in the World Cup, its stock market delivered a significantly below average return the following day.

While the data did not show a positive effect where a country won its matches, it might be just one more reason to cheer on the Socceroos - and maybe even the US if you're more patriotic about your stocks than your football!

And what about the runner-up? Well, the stock market of the runner-up often experiences a post-final hangover. In the first month after a World Cup final defeat, seven of the last nine losing finalists stock markets underperformed the global market average by 1.4%. By month three, those returns trailed the global average by 5.6%.

3. All Eyes on the Game Means Liquidity Dries Up

Perhaps unsurprisingly, the World Cup proves to be a major distraction for many investors and traders when games are played during trading hours.

Monash University studied this trend over nearly 100 FIFA World Cup matches and 24 different share markets. It found that liquidity decreases significantly in the home equity market of a country playing a World Cup match. That means increased share price volatility.

Although the ASX won'tbe open when the Socceroos play their group stage matches, it is a different story for the US men national team. So if history is any indicator, and you are interested in US stocks, you may want to keep an eye on which days the US plays.

Such is the drop in liquidity, dollar trading volumes decline by as much as 29% during World Cup matches. In turn, this has led to heightened market volatility, increasing up to 18% before the start of a game, or decreasing up to 23% during a game.

And in case you were wondering, liquidity dries up even more if a match enters extra time. 

World Cup Stocks to Watch

With a month of football being watched by billions across the world, it is a prime opportunity for some companies to push their brand to new and existing audiences. A number of potential investment themes may also emerge.

For starters, there may be an increase in time spent using mobile apps. Internet search traffic could lift as football enthusiasts search for news and results. This favours Alphabet (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META).Online betting could pick up. This is the first World Cup the US has participated in since betting was legalised in a number of American states. That could be a tailwind for stocks like DraftKings (NASDAQ: DKNG) and Pointsbet (ASX: PBH).There may also be flow-on effects for consumer-oriented stocks. Although beer is banned at World Cup stadiums, global beer consumption is typically thought to increase during the tournament, which is positive for Ambev (NYSE: ABEV) and Anheuser-Busch InBev (NYSE: BUD).Meanwhile, the World Cup typically sparks an interest in football video games produced by the likes of Electronic Arts (NASDAQ: EA), as well as sporting goods, footwear, and apparel - especially if a country progresses deep into the tournament. E-commerce stocks like Amazon (NASDAQ: AMZN), Alibaba (NYSE: BABA), and eBay (NASDAQ: EBAY) are potential beneficiaries.And then there are sponsors like Coca-Cola (NYSE: KO), Visa (NYSE: V), and McDonald (NYSE: MCD), among others.

As for who might go on to win the tournament, We'll leave that to the experts!