14 September 2023
With the Rugby World Cup having kicked off last week, we took a break from financial market analysis to try and apply some number crunching to the hooligan’s game played by gentlemen.
France’s convincing win over New Zealand in the opening game of the tournament, spurred on by an enthusiastic Marseille crowd, raises the question of how much the passionate French supporters will affect the outcome of this tournament.
We take results from international matches between top-tier teams played between 1980 and 2023 and estimate the home-ground advantage by calculating the average winning margin for all games that involve a team and comparing it to the average winning margin for their home games.
From the chart above, we can see that France hasn’t had a particularly strong home ground advantage, and in fact, it is our own South African fans who seem to give the Springboks the biggest boost when playing in front of a home crowd. Hard data proving that Springbok fans have the most gees!
We also ask the question of which teams do particularly well at World Cups relative to their performance in other matches. Unsurprisingly, the All Blacks have historically shown up well at World Cups, along with Australia, Argentina, and South Africa.
This year’s tournament certainly feels like one of the most open and competitive World Cups in recent memory, with any of the top four ranked teams—Ireland, France, South Africa, and New Zealand—having a good chance of prevailing. Below are the official IRB ranking points for the top 20 teams in the world prior to the start of the competition, with only 2.76 ranking points separating the 1st and 4th ranked teams.
But how well do the official IRB rankings predict match outcomes? This is a question we continually ask ourselves as investment professionals when considering any feature, metric, or factor of a security: does it actually predict forward-looking investment returns?
And so, the habit bleeds into other domains. We have gathered the IRB world rankings on a weekly basis over the past 5 years, and for each match in our dataset over that period, we compared the ranking of the two teams prior to the match to the resulting score margin. As the chart below shows, there is a very positive correlation.
Across our sample, taking only the relative IRB rankings and home ground advantage into account predicted the match outcome correctly 70% of the time. For games where the difference in ranking points between the teams was more than 5, that accuracy went up to 80%. So using the official rankings is probably a good strategy to use in your office Superbru pool, but probably not accurate enough to consistently beat the bookies.
As with financial markets, it is not only predicting outcomes with some degree of accuracy but predicting those outcomes more accurately than the market that is required to earn excess returns.
To bring the discussion back to financial markets, in their 2007 paper ‘Sports sentiment and stock returns’, Edmans, Garcia, and Norli ask whether important sporting events impact national sentiment enough to impact the stock market and find that “national stock markets earn a statistically and economically significant negative return on the day after a loss by the national soccer team”.
They observe a smaller but still marginally significant effect after losses by the national rugby team. The effect of wins is not clear from the data, although some of the analysis suggested a small positive effect. The effect sizes in this paper ranged from about 5 to 40 basis points. So, while it is not going to change anyone’s retirement outcomes, let’s hope for a positive outcome for the Boks on the 28th of October and maybe even a slightly more positive JSE All Share on the Monday thereafter.
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