Many investors believe the outcome of the Super Bowl, the final game of the U.S. NFL football season, and how stock prices behave for the rest of the year are connected. Interestingly, this relationship does hold up under statistical scrutiny. However, you must better understand what such a statistical outcome means before making financial decisions based on a football game.
The Super Bowl is the final game in the National Football League's season and occurs usually in February. The champion is crowned as a result of this single game, adding to the excitement. Unlike many sports leagues around the world, the NFL uses two separate bracket systems. The champions of the two conferences, the AFC and NFC, meet in the Super Bowl, which means that if the two best teams in the entire league happen to be in the same conference, only one of them will have a chance to go to the Super Bowl, which is held in a different city every year.
Effect on Stocks
The so-called "Super Bowl Halo Effect" is a statistical oddity. Historically, the Dow Jones industrial average is more likely to decline over the course of the full year after which the AFC team wins the championship. When the NFC team is crowned, the Dow is more likely to finish the year higher. This basic rule has held 80 percent of the time thus far. Because the Super Bowl occurs within the first two months of the year, investors who wish to bet on this halo effect have ample time to buy or sell based on the game's outcome.
There is no logical reason for any sort of relationship between the Super Bowl's outcome and stock prices. The relationship is what statisticians refer to as a "false positive," or the appearance of a relationship between two variables purely as a result of chance. If one looks at a sufficient number of indicators, sooner or later, such relationships might emerge. If, for example, you were to check the relationship between stock prices and such unrelated variables as your weight, your kids' test scores and the number of people who wear purple socks, sooner or later, you will get lucky and find a correlation. Such relationships will, of course, prove to be very poor future predictors, just as the Super Bowl effect will likely be going forward.
On the other hand, the Super Bowl might truly boost the economic activity in the area where it will be held and boost the stocks of local companies. Seeking Alpha has published a study going back to 1999, which shows higher returns for the shares of firms based in the city hosting the Super Bowl. While the S&P; 500 gained an average of only 2.02 percent per year between 1999 and 2012, the local stocks in cities that hosted the Super Bowl climbed an impressive 9.65 percent on average. Such a correlation makes sense, and is far more likely to have true predictive power going forward.
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