- The Super Bowl Indicator and its questionable success rate
- The origins of the Super Bowl Indicator and its unintended impact on Wall Street
- The importance of out-of-sample testing in financial patterns
Many on Wall Street are eagerly awaiting the outcome of this year’s Super Bowl, not just for the excitement of the game, but also for its potential impact on the stock market. The “Super Bowl Indicator” suggests that if the winning team was never part of the original American Football League or was in the NFL prior to the AFL-NFL merger in 1966, the U.S. stock market will rise for the year. However, despite claims of its impressive track record, the Super Bowl Indicator’s success rate is worse than a coin flip.
The Origins of the Super Bowl Indicator
The Super Bowl Indicator was not developed by a financial expert or an economist, but rather by Leonard Koppett, a sportswriter and member of the Baseball Hall of Fame. Koppett created the indicator as a joke and was embarrassed when it gained attention from Wall Street. He first mentioned it in the Sporting News sports magazine in February 1978. It was then publicized on Wall Street by William LeFevre, editor of the Monday Morning Market Memo, and Robert Stovall, president of Stovall Twenty First Advisors.
The Questionable Success Rate
Testing the Super Bowl Indicator’s success after its discovery is crucial in determining its reliability. Historical data can often present patterns that appear accurate but are actually spurious. The results of out-of-sample testing since 1978 show that the stock market has actually performed better when the indicator is bearish, contradicting the indicator’s supposed predictive power. This calls into question the validity of the Super Bowl Indicator and highlights the need for rigorous testing of any stock market pattern.
The Importance of Out-of-Sample Testing
The Super Bowl Indicator serves as a reminder of the replication crisis in academic finance. A Duke University finance professor, Campbell Harvey, found that at least half of the 400 strategies claimed to beat the market in prior academic research were actually bogus when tested out-of-sample. This emphasizes the importance of subjecting all apparent stock market patterns to rigorous testing to separate genuine predictors from mere coincidences. Investors and financial academics alike should approach any supposed market indicators with caution.
While many on Wall Street continue to speculate on the outcome of the Super Bowl and its potential impact on the stock market, the Super Bowl Indicator’s track record is far from reliable. Its origins as a joke and its subsequent unintended influence on financial markets highlight the need for rigorous testing of stock market patterns. Investors and financial academics should approach any predictive indicators with skepticism and subject them to thorough out-of-sample testing. Ultimately, enjoying the Super Bowl should be separate from concerns about its impact on the stock market.