May the best team win the Cup, but …

China Daily (Canada) - - COMMENT -

The start­ing point to de­ter­mine the win­ner of the Foot­ball­World Cup has to be to look at some com­bi­na­tion of rank­ings, past form, play­ers and mar­ket odds. We (at Deutsche Bank) em­ploy a quan­ti­ta­tive ap­proach us­ing these in­puts to spit out a first cut of likely win­ners.

Our mod­els point to Brazil hav­ing the great­est chance of win­ning fol­lowed by Ger­many, Spain and France. But to leave it at that would be bor­ing and too con­ven­tional. So we in­tro­duce what some would call ours bias, but we like to think of it as a dis­cre­tionary over­lay.

To be­gin with, we note that since the in­cep­tion of the­World Cup in 1930, there has been a pat­tern to runs of dif­fer­ent teams win­ning the­World Cup. On three oc­ca­sions, we have had four con­sec­u­tiveWorld Cups when dif­fer­ent teams have won, and on an­other three oc­ca­sions we have had two con­sec­u­tiveWorld Cups where dif­fer­ent teams have won.

So, to make this sound more sci­en­tific, we have a bi­modal dis­tri­bu­tion of “runs”. The lat­est “run” started in 2002 with Brazil win­ning, then 2006 with Italy win­ning and in 2010 Spain win­ning. If sta­tis­ti­cal his­tory is any­thing to go by, thisWorld Cup has to be won by a dif­fer­ent team, so that we have a run of four con­sec­u­tive World Cups won by dif­fer­ent teams.

That means Brazil, Spain and Italy are not go­ing to win the­World Cup. From our mod­els, we’re then left with Ger­many, France, Ar­gentina, the Nether­lands, Por­tu­gal, Uruguay and Eng­land as pos­si­ble win­ners.

Nar­row­ing it down, the record shows that ev­ery team that has won the­World Cup has gone on to ei­ther win an­oth­erWorld Cup or at least reach the fi­nal. The ex­cep­tion is Eng­land, which sig­nif­i­cantly tilts the odds in its fa­vor. More­over, most analy­ses tend to miss out playerby-player anal­y­sis ofWorld Cup squads.

It is no­tice­able that the most well rep­re­sented team in the Eng­land squad is Liver­pool with six play­ers, one of the au­thors’ fa­vorite club. In the lastWorld Cup, it was Tot­ten­ham Hot­spur, so it was no won­der that Eng­land did not do well.

The fact that Liver­pool is most rep­re­sented is sig­nif­i­cant for two rea­sons. First, Liver­pool is the most suc­cess­ful English club team hav­ing won more top-flight matches than any club (yes, in­clud­ingMan United); it has also won five Euro­pean Cham­pi­ons Cups— more than any other English Club. Sec­ond, and most in­trigu­ingly the last time the Eng­land squad was dom­i­nated by Liver­pool was …1966.

To re­it­er­ate, Eng­land are among the best teams ac­cord­ing to our static model. The his­tory ofWorld Cup win­ning runs sug­gest that Eng­land is among the teams that could win the 2014 Foot­ball­World Cup. Within this group of teams, Eng­land is the only one that has won a World Cup and not reached an­other fi­nal. And the last time Eng­land had so many Liver­pool play­ers in the team, it won. There­fore, we be­lieve that Eng­land will win thisWorld Cup.

Mov­ing on to the smaller mat­ter of mar­ket im­pli­ca­tions, we con­firm that there is a small eq­uity mar­ket im­pact for win­ning teams. More in­ter­est­ing, though, is that rates vo­latil­ity tends to re­verse course af­ter the­World Cup. It may be wish­ful think­ing, but we hope this re­la­tion­ship holds true.

The au­thors are strate­gists with Deutsche Bank.

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