What Is the Super Bowl Indicator and Does It Really Work?

Should you root for the AFC or the NFC in the Superbowl?

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Does the winner of the Superbowl affect the market?. Tom Pennington / Staff / Getty Images

This year, over 110 million people will watch the Super Bowl, each one rooting for their favorite team. To the fans of the victor go all the gloating rights for another year.  But according to the Superbowl Indicator, the team that wins will also determine if the stock market is up or down for the year.

Started back in 1967, the indicator suggests that if the winner of the Super Bowl is from the AFC, then the stock market will be down for the year.

 However, if the NFC wins the game, then the bulls are going to run on Wall Street.

At first it seems silly doesn't it?  How could the winner of a football game have any influence whatsoever on the stock market?  But the numbers are impressive.

Using the Dow Jones Industrial Index as the benchmark, the indicator has been correct 36 out of 47 times, or 77% of the time.  There have been times when the indicator was even more accurate, for example, between 1967 and 1997 when it correctly predicted the market 90% of the time.

So at first blush it looks like it really works, but logically we know that it shouldn't.  That it really can't.  So what is going on?

The answer is data mining.  Data mining is the practice of looking at large sets of data, and then finding a correlation between two different sets of that data that are actually unrelated.  Data mining is to explain for the fact that when major league batting averages go down, the stock market goes up.

It also explains the suspect relationship between sunspots and economic activity.

Perhaps a better way to think of data mining and how it relates to the Superbowl indicator is to look at the reverse correlation.  

Think about how many sets of data exist in life on a yearly basis.  The number of new network sitcoms green lighted each year.

 How many times Brad Pitt is on a magazine cover.  The number of times that your boss asks you to work late.  How many bills are introduced in the Senate.  And so on.

Now think about how many of those data sets have no correlation with the yearly performance of the stock market?  When you look at it in those terms -- that probably 99% of all data sets don't have any correlation to the stock market -- it is easy to see that just by coincidence, the winner of the Superbowl seems to influence the market.

And it just so happens that the Super Bowl is one of the most widely watched events each year -- both in the US and globally -- which reinforces our bias that it is somehow effecting the market.

So the answer is, "No," the Super Bowl winner doesn't really affect the market, but there is a good lesson to be learned from it.  No matter what metric we are using to analyze the market -- fundamental or technical -- we always want to be on guard to the possibility that we are, in our own small way, data mining and putting our own bias into the mix.

This helps us to distinguish between correlation and causation, and ultimately gives us a more objective, and thus more truthful, picture of the stocks or markets we are looking at, which helps us to be more profitable investors.

*Update* Now that the Patriots won Superbowl XLIX, let's see if the stock market follows the rule.