Mises Wire

Peyton Saves the Super Bowl Indicator?

Of course the Super Bowl Indicator—the idea that the football league that wins the Super Bowl predicts the direction of the stock market—is a fallacy. 

When it was discovered in the 1970s it had a nearly perfect record for predicting whether the stock market would experience a positive or negative year. The indicator’s record has since fallen to the low 80% level. Over the last 16 years it’s record has been 50%, or what you would expect at random. 

With Peyton Manning and the Denver Broncos winning the Super Bowl, the indicator “predicts” a negative stock market for 2016. That prediction seems like a safe one to make given the performance of the stock market so far in 2016 and for fundamental reasons as well.

However, the Super Bowl indicator is a classic example of confusing correlation with causation. Yes, the Super Bowl winner is correlated with stock market returns, but one does not cause the other. If you took the first 10 Super Bowl winners, and looked hard enough, you could find a correlation with something else. Likewise if you took ten years of stock market returns you could find something that was correlated with those returns that was completely disconnected with the market. 

The only real factor involved in establishing the Super Bowl indicator was—at the time of the leagues merger—the American Football Conference was an inferior conference compared to the National Football Conference and was expected to lose most Super Bowls and that the stock market experiences gains in most years.   

 

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