When the New York Giants raised the Vince Lombardi trophy to celebrate their victory in Super Bowl XLVI, Giants fans and players weren't the only ones cheering. It is also possible that a cheer was heard from Wall Street, thanks to a bit of an urban legend in investing that says the stock market will end the year on a positive note if a team from the original National Football League wins the Super Bowl, and it will decline if a team from the old American Football League wins the big game.
For those who think this a silly myth, the results tell a different story, as this indicator has been right about 80 percent of the time, according to a study by Washington and Lee University finance professor George Kester. After seeing a similar study published in 1990 by Thomas Krueger and William Kennedy that examined the economic impact of Super Bowl victories, Kester further examined the correlation between the Super Bowl and the economy by looking at how the economy finished each year since the Super Bowl was first played in 1967.
"For some time I had been interested in repeating and updating this study," said Kester. "In addition to determining whether the predictor was correct in determining up or down markets, I was also curious whether the model could predict especially strong bull markets and especially bad bear markets and outperform a buy-and-hold strategy."
Kester tested this hypothesis by looking at historic results for the stock market, and hypothetically invested $1,000 in either S&P 500 stocks or Treasury bills over the past 40-plus years. The results of this study were published in a spring 2010 edition of the Journal of Investing.
"Interestingly, over the entire history of the Super Bowl, my wealth would have been more than twice as great had I used this strategy rather than a passive buy-and-hold strategy with the S&P 500," Kester said. "I took brokerage costs into account whenever I sold Treasury bills and invested in stocks and vice versa, and I also included dividends on the S&P stocks. The dollar values of the portfolios at the end of 2008 would have been $43,000 for a buy-and-hold strategy and $105,000 for the Super Bowl market-timing strategy."
Although this study has been proven correct almost 80 percent of the time, Kester is quick to warn investors not to get too overzealous in their excitement about this information. One notable exception to this came in 2008, after the Giants beat the New England Patriots and the S&P 500 finished the year down 38.49 percent. However, when the Green Bay Packers won last year's Super Bowl, the indicator was proven correct, as 2011 ended on an economic high note.
"Of course, you have to do a research project like this with a sense of humor and realize that this is spurious correlation," said Kester. "It would be difficult for me to recommend to any investors that they base their strategy on a football game. On the other hand, in hindsight, the superior investment performance of the Super Bowl market-timing strategy speaks for itself."
Reach BusinessNewsDaily staff writer David Mielach at Dmielach@techmedianetwork.com. Follow him on Twitter @D_M89.