CYCLES, SHOCKS, AND SENTIMENT: REUNIFICATION, REALIGNMENT OF PUBLIC SPENDING AND THE CYCLICAL GROWTH-NATIONAL SPORTING SUCCES NEXUS

Abstract

This study analyzes the relationship between cyclical growth and national sporting success. The literature attributes this nexus to two channels: pro-cyclical public spending for national sports or a sort of q-driven investment activity induced by national sporting success. To analyze whether such a relationship can be established using German data, we adhere to a primarily descriptive methodology. We examine daily stock market data and macroeconomic time series in annual and quarterly frequency for a relationship between these data and the results of roughly 500 matches played by the German national soccer squad in the period from 1959 to 2004. Our methods of choice are techniques from time series analysis and event study analysis. We are able to establish a nexus in the decades prior to German reunification. This relationship fades in the period after reunification. As a result the nexus for the total period is obscured and asymmetric. For the stock market, it is predominantly a pessimistic market that coincides with losses of the national team. As it is virtually impossible to disentangle the spending channel from q-driven investment effects, we attribute this finding to both disproportionate expectations and a realignment of public spending in the aftermath of reunification.MACROECONOMIC COMOVEMENT, NATIONAL SPORTS, REUNIFICATION