This coming Sunday is Super Bowl XLVIII.
One of the most famous market predictors in the U.S. is the Super Bowl Indicator. This holds that if the Super Bowl is won by a team from the old National Football League the stock market will end the year higher than it began, and if a team from the old American Football League wins then the market will end lower.
Well, it certainly sounds far-fetched that a game of mutant rugby could affect the economy and stock market. However, in 1990 two academics published a paper (Krueger and Kennedy, 1990) finding that the indicator was accurate 91% of the time.
And then in 2010 George Kester, a finance professor at Washington and Lee University, published a paper (Kester, 2010) with new research that found that the Super Bowl Indicator still worked (although its accuracy had fallen to 79%). Kester also calculated that a portfolio that switched between stocks and treasury bills governed by the Super Bowl Indicator would be worth twice that of a simple portfolio invested continuously in the S&P 500.
And the connection between American football and the UK stock market is…?
Seeing how closely correlated the U.S. and U.K. stock markets are, it might be interesting to see how the Super Bowl Indicator applies to the U.K. market.
The following chart shows the annual returns of the FTSE All Share index since 1967 (when the Super Bowl started). The Y-axis has been capped at +/- 50%, which truncates the bars for the years 1974 (-55%) and 1975 (+136%). The years for which the Super Bowl Indicator failed to accurately predict the direction of the market has been indicated with white bars in the chart.
As one can see, the indicator got off to a great start in the years following 1967, but recently its record has been patchy. Overall, the indicator was accurate in 72% of years (only slightly less than its accuracy rate in the US).
Unfortunately a paper (Born and Acherqui, 2013) published last year has rather spoilt the fun. The authors found that the ability of the Super Bowl Indicator to forecast the market had reduced to almost zero in the years since publication of the Krueger and Kennedy paper in 1990.
Market around the time of the Super Bowl
The chart below shows the market behavior around the time of the Super Bowl; the bars represent the average daily returns in the FTSE All Share Index since 1967 for the three days before, and three days following, the Super Bowl (which always takes place on a Sunday).
- Born, Jeffery A. and Acherqui, Yousra, A Re-Examination of the Super Bowl Stock Market Predictor (2013)
- Kester, George W., What Happened to the Super Bowl Stock Market Predictor? (2010)
- Krueger, Thomas M. and Kennedy, William F. , An Examination of the Super Bowl Stock Market Predictor (1990)