Last Updated Feb 7, 2010 10:27 PM EST
More can be read in a column from Parade Magazine on Super Bowl Sunday that I thought was appropriately labeled The Truth Behind Super Bowl Myths. Myth #6 was "The outcome of the Super Bowl predicts the stock market's performance for the coming year."
I was pleased to see that the media finally labeled #6 as a myth, though I wasn't pleased for long. Reading on, I came upon a ridiculous statement that claimed, "Absurd as it may sound, this is the only Super Bowl myth with clear evidence to back it up." The article went on to say the "Super Bowl Indicator says that if a team from the old American Football League wins, stock markets go down; if one from the old National Football League wins, the markets will go up."
How reliable is the indicator?
The Parade Magazine article stated that, according to Robert Stovall, an "investment strategist", the indicator has been right 34 of 43 Super Bowls. That sounds pretty good, right?
Before you bet on this indicator
Here's a little lesson on statistics. If you compare stock market performance to a thousand random events, such as temperature, traffic, or Super Bowl outcomes, you are likely to find one series of events that has a 99.9% probability of past correlation. Unfortunately, it will also have zero predictive power going forward.
This human addiction to prediction causes us to do what is called "data mining." It's a behavioral trait that drives us to find patterns out of randomness. And armed with these patterns, we are able to go forward and brilliantly predict . . . the past.
A second look at the Super Bowl Indicator
According to Snopes.com, the Super Bowl Indicator was right about 90 percent of the time through 1997 which, coincidentally, was about the time I started hearing of the indicator. Since then, however, it's been right about 50 percent of the time.
Snopes.com further notes that the indicator is also subject to interpretive issues as fewer and fewer teams are from the original American and National Football Leagues.
It seems silly that we would believe in something like the Super Bowl outcome predicting the stock market. Yet I would argue that it's no sillier than the gurus on TV using their sophisticated analysis to pick stocks or predict stock market directions. They're all myths - don't buy into them.
Remember that the highest correlation to the U.S. stock market ever found was "Butter Production in Bangladesh." The only Bull I'm willing to bet on is that these indicators are just that - bull!
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