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An Analysis of Superbowl Volatility

An Analysis of Superbowl Volatility. Sean Puneky 10 February 2009. Initial Theory. A study in Behavioral Economics Traders trade what they know

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An Analysis of Superbowl Volatility

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  1. An Analysis of Superbowl Volatility Sean Puneky 10 February 2009

  2. Initial Theory • A study in Behavioral Economics • Traders trade what they know • Theory: If traders witness a commercial from a major add campaign, they are more likely to develop trading ideas for the stock, increasing the volatility of the stock • Volatility should reflect fundamentals, not trader behavior

  3. A Testable Hypothesis • Test uses data from a major event like the Superbowl where many companies release their best commercials • Companies that advertise in the Superbowl should see the Realized Volatility of their share prices increase on days following the Superbowl

  4. Structure of the Test • A one sided t-test is used comparing the volatility before the Superbowl to the volatility after • Variables for t-test: • Equation:

  5. Structure of Data • Data sets are means of the Realized Variances from an 8 minute sampling interval on the five trading days before and after the Superbowl • Log(mean) from before the Superbowl subtracted from the log(mean) from after the Superbowl for each year • T-test performed with null hypothesis that difference is equal to zero

  6. Stocks Chosen • Working with three stocks: PEP (Pepsi), KO (Coke), and FDX (Fed Ex) • Both Pepsi and Fed Ex advertised in the Superbowl over the testing period while Coke advertised only before the Superbowl in 1998-2006

  7. Volatility Signature Plot of PEP

  8. PEP Histogram

  9. Volatility Signature Plot of KO

  10. KO Histogram

  11. Volatility Signature Plot of FDX

  12. FDX Histogram

  13. T-Test Results (9df) • PEP • T-value of 2.27714421054183 • Significant at 2.5% level (t>2.26216) • KO • T-value of -0.250909814238321 • Not significant • FDX • T-value of -0.645862272357625 • Not significant

  14. Conclusions • Although PEP and KO show promising results, FDX is inconsistent with theory • PEP volatility increases without any change in the fundamental value of PEP

  15. Extensions • Investigate the FDX dilemma • Examine the effects of weighting Superbowls by viewership or price of air time • Expand analysis to other ad campaigns

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