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Economic Self-interest and the Super Bowl: Let's Cheer for a Giant Victory

Those of us who detest professional football nonethless have a vested interest in the outcome of the upcoming Super Bowl. A victory for the New York Giants should line our pockets with money — or at least help keep our TIAA-CREF accounts solvent.

That, at least, is the implication of the Super Bowl Predictor of Stocks, which has correctly called the direction — up or down — of the following year’s Dow Jones Industrial Average 33 of 41 times, an 81% success rate.

The logic of the predictor is simple: If a team from the original NFL wins, the market is destined to go up; if one of the old AFL teams wins, the Dow is about to sink.

The Patriots of New England, one of the old AFL teams, are heavily favored. Even though I’m a devout non-fan of the sport, I’ll be pocketbook-cheering for an upset.

[Via William Power, “Win for the Patriots Is Win for ‘Da Bears,’” Wall Street Journal, 29 January, p. C2]

Posted by Lee Sigelman on January 31, 2008 10:17 AM |

Comments

Lee,

How can anyone question that "logic"? But just for fun let me try.

As a rational expectations kind of guy, I have to ask the question why stock prices don't already figure in the expected winner?

Thus, I would expect that since an old AFL team is favored to win, stock prices should already be down (abstracting, of course from all the other factors pushing them down these days!). Thus, a win by the Patriots should not move the market at all, as it would already be priced in. However, a win by the Giants, being unexpected, would cause stock prices to jump, the Fed to raise interest rates, and all h___ to break loose :)

Posted by: Phil Y | January 31, 2008 03:00 PM

Phil:

All you economists think alike. An obvious case of disciplinary brain-washing.

Here's a portion of the Wall Street Journal story that I didn't quote in my post:

"In fact, he [Robert Stovall, a strategist of Wood Asset Management who has long tracked the indicator] says the indicator might be influencing the market 'in reverse' right now, with traders pushing down stocks since they -- and Vegas oddsmakers -- figure the undefeated Patriots will win."

Posted by: Lee Sigelman | January 31, 2008 03:17 PM

I know everyone is joking around here, but I think Phil is wrong about how rational expectations works in this situation.

Even if the Patriots were favored to win, say with 80% chance of winning, and the stock market was expected to be down 10% in the event that they win, and up 10% if they lose, shouldn't it be be about 6% down until they win and 10% after?

I guess if the Patriots were predicted to win with close to 100% certainty, then his description would be right.

Posted by: TheOneEyedMan [TypeKey Profile Page] | February 4, 2008 11:00 AM

Here is a graph of the price of the contract Giants Win over the course of the game:
http://volokh.com/files/michaelabramowicz-chart1199884680343262350.bmp

It seems like 20% chance for the Giants is about what was predicted.

Posted by: TheOneEyedMan [TypeKey Profile Page] | February 4, 2008 11:13 AM