Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Super Bowl Indicator

What it is:

The Super Bowl Indicator, also known as the Super Bowl Effect, is a theory that stock prices will fall if the AFC team wins the Super Bowl.

How it works (Example):

The Super Bowl is the final game in the National Football League season. The winners of two divisions -- the National Football Conference and the American Football Conference -- play in this game. The Super Bowl occurs early in the year (usually February), which adds to its effect as a predictor of how stocks will perform during the year.
 

Why it Matters:

The Super Bowl Indicator is just one of many superstitions that distract investors from doing fundamental and technical analysis of their existing and potential investments. Other psychological effects include the October effect, the January effect, and the hemline effect.

In general, investors create a self-fulfilling prophecy regarding the Super Bowl Indicator simply by believing in it. If the AFC wins the game, they sell their shares, thereby depressing prices and creating the very effect they were afraid of.

The Super Bowl Indicator is also an example of the difference between correlation and causation. That is, just because two things are correlated does not mean one causes the other. In this case, even if stock prices were correlated with the famous NFC vs. AFC game, the winner is not the cause of the change in stock prices.