From Gridiron to Portfolio: The Super Bowl Effect Explored

Unmasking the Super Bowl Effect in Behavioral Finance | Bryan Foltice

Welcome to another episode of the Bryan Foltice Behavioral Finance Podcast! This week, coinciding with Super Bowl week, Dr. Bryan Foltice dives into the intriguing 'Super Bowl effect'—a theory that links Super Bowl outcomes with stock market performance. Originating from a 1978 New York Times article by Leonard Kopet, the theory suggests that an AFC team win signals a market decline, while an NFC team win predicts a bull run. Bryan scrutinizes this pattern recognition, its historical accuracy, and the cognitive biases that entice us to believe in such coincidences. He concludes by emphasizing the importance of disciplined, long-term investment strategies over superstitious financial decisions. Tune in for an enlightening discussion and don't forget to subscribe!

00:00 Introduction to the Podcast
00:42 The Super Bowl Effect Explained
02:00 Historical Analysis of the Super Bowl Effect
04:33 Behavioral Finance and Cognitive Biases
07:33 Correlation vs. Causation
10:00 Other Market Indicators and Theories
12:49 Final Thoughts and Advice
13:15 Closing Remarks

Transcript

0:04

Welcome to the Brian Foltis Behavioral Finance Podcast, where we unravel the mysteries of behavioral finance and unlock the secrets to making smarter, more informed decisions with your money. Now here's your host, Dr. Brian Foltis. Hello everyone and welcome to the Brian Foltis Behavioral Finance Podcast. You know it's me, Brian Foltis, and today it is Super Bowl week and we have The Chiefs playing the Philadelphia Eagles here in Super Bowl, I don't even know what it is this week, Sunday. And today we're going to talk about the Super Bowl effect. So what it is. How we learned about derived what this Super Bowl effect is, and then also try to unpack if we should make any decisions based off of it. Where did it come from? And should we actually let this influence our portfolio decisions? Let me give you a brief hint. No, don't let it influence your investment decisions. But today That's what we're gonna be working on here. And this all came from a New York Times editor, the Super Bowl effect. And what it said here is, if in the Super Bowl the a FC, the American. football conference that this weekend is going to be the Kansas City Chiefs. If the AFC team wins, then the stock market is going to decline in the coming year. If the NFC team wins, that'll be the Philadelphia Eagles this year. That means that The stock market will go on a bull run and will increase over the next year. This particular article was written in 1978. And at that point, this is written by a New York Times writer named Leonard Kopet. And Kopet realized that if he looked back in 1978, The first 12 Super Bowl games, 11 out of the 12 times, the outcome matched his theory. NFC team wins, the market goes up within the next year. The AFC team wins, the market goes down. He was right. 11 out of 12 times. So you have the sample and you just go 11 out of 12 is 90. 9 percent I think. And this is where he said, okay this is how you should judge your portfolio. And. And then this Superbowl effect was born and I've seen some other ones talking about the coin flip is up and we're trying to detect some of these patterns that based on the coin flip but this original Superbowl indicator just came off of the Final results. And so as time goes on and we were to give this more data into more samples, you can see from 1967 to 2023 indicator was correct, 63 to 68% of the time and. So again, it's still higher than 50% over the last 22 or three years. It's only been correct 35 to 39% of the time. And so at one point it continued a 90% success rate, and now it's kinda moved back to 63 to 68% at the time well. I just want you to think about this. Is there any relationship between Super Bowl effect or the Super Bowl outcome and the stock market performance? So perhaps if we really try to stretch our imaginations, it could be that if a big city team in New York or something. wins the Super Bowl and perhaps people want to buy more of the stock market and maybe they have more wealth than another team in a smaller market. But again, once you can see how I'm really grasping to try to figure out a plausible explanation for it. But if we look to Behavioral finance, we can see that there's some cognitive biases at play. And we see here a couple of things. When we find those first 12 and 12 are right. We start to detect patterns and we have this pattern recognition that is in bread in our DNA for many years. And if you think about before we had any technology, the first. Inhabitants of the earth. If you start detecting patterns, this was a mode of survival, trying to detect patterns in our weather and our seasons to keep ourselves alive detecting patterns on how, the animals that we were hunting behave. This pattern recognition is deeply embedded in us and we like to find those patterns. And so if we find something, we go, Oh, this is a natural, um, this intuitive, intuitively matches what I've been looking for. And so sure enough, let's just believe this. And so you have this pattern recognition that we're always constantly. Looking for and even if it's a small sample, we're just trying to make a pattern out of something and We also have this confirmation bias so this is also just trying to cherry pick some of our data to confirm what we believe and That's where you when you slice the years into certain Fragments that has a really compelling story towards the Super Bowl effect And if you use a certain data subset you have really negative story around the Superbowl effect. And this is once again, is we're trying to in our own portfolios and we're looking at past performances and somebody's really trying to sell you a product. So we really want to be careful on if they've cherry picked the data to match their story or if they used all the data that was available. So sometimes when we're trying to do like a research paper on momentum and investing, there's only. Depending on the data set that you have, there's a certain amount of time that's reliable or a certain amount of time that's relevant, but the person who is telling the story and trying to show you these results really needs to have a strong case as to why they chose the timetable and timeframe that they did and that they didn't just arbitrarily cherry pick the data in order to match The results that they were looking for, but this once again, is this confirmation bias that could play an effect with the Super Bowl effect. Okay, so let's break this down. If we have this Super Bowl effect with the historical success rates, once we give it an extra time, the results start to dissipate and we're showing here and this is What we need to take away from this, does correlation equal causation? That's what we constantly need to think about when we're seeing some of these patterns evolve. Does the correlation equal causation? And that's where we have to think, is there some sort of intuitive reason why? An NFC team winning would indeed have an effect on the stock market over the year. And I gave you my best shot and it was terrible, right? Just a few minutes ago when I was trying to explain this. And that's where we have to identify that. This is not, this is just more or less a humorous thing that if I flip a coin 10 times and I get seven heads out of 10, that's not because I'm a good coin flipper, it's just because the randomness showed that. It was going to be at 7 heads out of 10 and the next time it'll be 7 tails out of 10. And we will, it's just randomness playing out here. And so we have to just really disassociate ourselves from this correlation equaling causation all the time. And there was another study that I saw from it was thunderstorms in the East coast of the United States were really highly correlated with traffic accidents in the Netherlands. And you had the data set, exact same matching timetables, strong correlation, but once again, it's just showing that doesn't cause one thing or another, at least to the best of my knowledge, that a thunderstorm in the east coast of the U. S. is not going to cause extra fatal crashes in the Netherlands. Once again, we can see these things, we can talk about it, but once again, we're You have to understand that correlation does not equal causation. And so you can see this playing out in other areas of finance when we have some of these superstitions or some of these pattern recognitions that we found. In fact, my colleague and I, we just wrote. A paper on this Halloween effect where we say sell in May and go away, come back around Halloween day. This whole thing of selling your stock portfolio in May, staying out of the market and then getting back for all the action in October through May is shows. Very similar returns with lower volatility. And so we set out to prove them wrong and say that this is no longer a thing, or it's gone away. Like the super bowl effect over time just needed more timetable. And we still found that it was sticking around and wrote a paper about it. Cause we found it was interesting that this effect was still in effect. And but once again, our. Our research that we're writing about and we're talking about and our actual actions in our portfolio are two different things And you can make your own decisions based off of that Information if you want to change your portfolio around on that. i'm not here to give you any advice I just know that in my world This is not a case that I'm on and off in my portfolio based on this Halloween effect and same thing if you've ever heard of this some of these other market indicators where if you have the hemline hemline theory is market and economic conditions based on hemline length of skirts for the females so the argument goes if The worst economic conditions of the worst stock market conditions, the ladies are going to cover themselves with their dresses more. And as the market conditions continue to improve and the stock market performance improves, the hemlines go higher. And there's another one out here called the lipstick index. That one's a new one for me. I'm suspecting though, that More lipstick is going to be positive. Less lipstick will be negative from an economic and stock standpoint. Anyway I just thought this would be a fun topic to talk about. And you can do what you want in your portfolio based off of the Super Bowl effect. But that means if the Chiefs win This is going to be a bear market or decline in the stock market and if the Eagles win. We're in for a continued bull run. So Anyway, you can take it away. I don't know what you're Going to do with that, but My advice is to stick to a long term discipline strategy time in the market versus time mean the market and trying to stick to index broad based fundamentals instead of through the Super Bowl coin flip or the Super Bowl outcome to dictate our particular decisions here. Alright, I'm going to leave it at that. Please make sure you like and subscribe. There's a lot more coming up here as we continue to unpack different aspects of behavioral finance. If you have any questions or want to leave a comment, please reach out to me. You can find me on Instagram, on YouTube, and any of the other streaming platforms for this podcast. So thank you very much for listening today. Hope you have a great day. And we'll see what happens in the Super Bowl this week. We'll see you later. Bye. for tuning in to another episode of the Brian Foltis Behavioral Finance Podcast. We hope you found our exploration into the fascinating world of human behavior and finance, both enlightening and thought provoking. Be sure to subscribe for future episodes. And until next time, stay curious and financially savvy.