You can bet that Wall Street will be rooting for the New York Giants to pull off a victory against the New England Patriots during Sunday’s Super Bowl XLVI.And it’s not just because the Giants are the home team either.
It has to do with an old Wall Street legend called the “Super Bowl Stock Market Indicator.”
This particular indicator says that if a team from the old National Football League (NFC division) wins the Super Bowl, the S&P 500 will gain for that year. However, if a team that can trace its roots to the old American Football League (AFC division) wins, the market will decline.
The two leagues merged to form the National Football League in 1970 with two conferences—the National Football Conference (NFC) and the American Football Conference (AFC).
So in Sunday’s game, stock market bulls and those who believe in the indicator will definitely want the Giants (NFC division) to be victorious.
While there isn’t any scientifically proven research to back this so-called Super Bowl Stock Market Indicator, it has had nearly a 78 per cent accuracy rate since its inception in 1967.
“It’s a rather formidable statistic,” said Bob Stovall, 85, a managing director and market strategist for Wood Asset Management in Sarasota, Florida.
Bob Stovall is the designated “custodian” of the Super Bowl Indicator. “I just keep the records of it. That’s all. I have stats on it,” he told Business Insider.
He admits that he doesn’t put real money into the market based on the indicator.
“I don’t think it’s enough motivation provided by something that is non-intellectual and not really substantively related to finance to put real money [on], but I always feel better when the Super Bowl Predictor is pointing up [rather] than down,” he said.
However, the indicator doesn’t always go according to the game plan. For example, when the Giants beat the Patriots (17–14) in 2008 the S&P tumbled 38.49 per cent and the financial crisis happened.
Again, the indicator is not a proven fact. It’s just something fun for investors.
“I think the Super Bowl Indicator is a fun indicator if you will,” Sam Stovall, chief investment strategist for S&P Capital IQ said in a phone interview.
“It shows first off that investors, you know, have an interest and a life outside of Wall Street—they are big sports enthusiasts. At the same time, they are willing to do things that are sort of tongue-in-cheek.”
Sam Stovall, who was a place kicker for Muhlenberg College in Allentown, Pa., doesn’t think there is any real proof to the indicator.
“The first thing I ask is ‘Is there a correlation with a causation?,'” Sam Stovall said. “I don’t believe there is. I certainly haven’t been able to identify causation.”
The indicator has, however, been subjected to academic research.
Washington & Lee University finance professor George Kester authored a study in 2010 about the Super Bowl Indicator.Kester told Business Insider he first heard about the indicator in the 1980s when he was teaching at Bucknell University when a student brought him a very “tongue-in-cheek” article about the quirky stock market predictor.
“I went across the hall to my colleague and said we ought to take the Super Bowl and subject it to this same statistical analysis,” he recalled. “He just laughed ‘No one would publish this.’ So I put the idea on the back burner.”
A few years later, an article appeared in the prestigious Journal of Finance by Thomas Krueger and William Kennedy where the pair published a study that found the Super Bowl Indicator had been correct an astonishing 91 per cent of the time from 1967 though 1988.
“So I was furious with my colleague,” Kester said. “I said ‘One of these days I’ll update.'”
That’s exactly what he did.
Using this investment strategy, Kester back-tested the Super Bowl Stock Market Indicator over the 42-year period from 1976 to 2008.
Here’s how he did it.
Beginning in 1967, he invested $1,000 in the S&P 500. Every time an original NFL team won he would invest in the S&P 500. When an original AFL team won, he would invest in U.S. T-Bills. When an expansion team won, he would invest on the basis of the old league affiliation of the losing team. In his study, he included transaction costs when shifts were made from stock to T-Bills and vice versa. Returns on the S&P 500 included dividends.
Photo: Getty/Andy Lyons
According to Kester’s findings, if he invested in the S&P using just a buy and hold strategy he would have a terminal portfolio value of $42,991. However, if he invested based on the Super Bowl predictor he would have a terminal portfolio value of $105,190. “That’s a sobering statistic,” he said.
Every year around the Super Bowl, Kester gives this presentation to his students at Washington & Lee University.
“When I present this you can see the smile on their faces ‘you’re not serious are you?'” Kester said.
He hasn’t personally invested based on the outcome of the Super Bowl, but he tells his students “No, but I wish I had. I would be more than twice as wealthy today.”