AN ANALYSIS OF SUPERBOWL VOLATILITYSean Puneky10 February 2009

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

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

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:

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

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

Volatility Signature Plot of PEP

PEP Histogram

Volatility Signature Plot of KO

KO Histogram

Volatility Signature Plot of FDX

FDX Histogram

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

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

Extensions

Investigate the FDX dilemma Examine the effects of weighting

Superbowls by viewership or price of air time

Expand analysis to other ad campaigns