NBA Finals: If the Los Angeles Lakers Win, Will Stocks Rise?

Filed under: Economic Data, DJIA, Recession

Tonight, the Boston Celtics battle the Los Angeles Lakers in Game 4 of the 2010 NBA Finals. It is safe to say that the people of California are rooting for the Lakers to win the basketball series, while those of Massachusetts support the Celtics. But could the outcome determine the direction of the stock market?

It is not clear that the stock market even should care. After all, the National Basketball Association is not a publically traded company. It is not the biggest business in America by a long shot. Most people's jobs and salaries are not dependent on 10 men running around on a court, and rightfully so. Maybe the economy has no interest in the sport.

But the Lakers and the Celtics are the two most storied franchises in the NBA. It is not even a stretch to say that more people know Kobe Bryant than Jim Chanos. The two teams combine for a total of 32 (soon to be 33) championships in the NBA's 64 seasons.

Celtics Vs. Lakers Could Effect the Dow

More interestingly, the fortunes of these two teams in championship series seem to predict the performance of the economy and the results of the Finals appear to have a consistent effect on the Dow Jones Industrial Average, a widely-accepted metric for the stock market. Looking at the behavior of the DJIA over the year after a champion has been crowned, from the June of the series to the next, a relationship is clear.

The year after a Lakers championship victory is usually a strong year, with the Dow gaining almost 14% on average. Only four of the 15 years showed a decline. When the Lakers lost in the NBA Finals, the market gained a mere 2.5%, and seven of the 15 were down years. A Boston Celtics championship did not precede a very good year, with an average loss of 0.4%, and nine of the 17 post-championship years being negative ones. When the Celtics lost the Finals, the market saw a spectacular 23% average increase (this only happened three times, though, an exceptionally small sample size).

When the two teams played each other for the championship, the results followed the trend. On the two occasions the Lakers beat the Celtics in the Finals, the Dow gained about 16%, but the market was down about a percentage point after the nine series in which Celtics were victorious.

From this data, the Los Angeles Lakers look like the team to cheer for. Their success has predicted the economy much better than most fund managers. Some may argue that this is not a ludicrous theory; the vehicles that push stock prices are often events that have nothing to do with finance. Anything, regardless of how trivial, can make a stock's price go up and down. People decide stock prices, and people's emotions are certainly subject to sports. Perhaps the Lakers winning the championship will be the event that prevents a double dip.

A Lakers Win Correlates to a Better Year For Stocks

Then again, this should seem shoddy to an intelligent investor. It is difficult to accept that something like basketball could influence the complex financial structure of the United States. The Lakers winning the Finals has been correlated to a better year for the stock market, but this has only held true on a miniscule number of occasions. It could have easily happened this way randomly. Also, to recall a statistics course mantra, correlation does not imply causation. Even if there was an apparent connection, proving that the NBA Finals actually create certain stock movements is a completely different (and probably impossible) matter.

America's economy is a dense, dynamic organism with a daunting number of constantly-changing inputs. It is the result of millions of interactions between people, computers, companies, and nations. The fact that a specific team can put an orange ball through a hoop more times than another cannot even pretend to accurately predict or influence such a vast system.

End of story. If you were reading this, and decided to risk all your assets on common stock if the Lakers won, please reconsider. For that matter, ignore anybody telling you that an idea similar to this one is a sure thing. An overused-but-true phrase comes to mind: If it is too good to be true, it probably is. A cute coincidence is not an economic indicator.

NBA Finals: If the Los Angeles Lakers Win, Will Stocks Rise? originally appeared on BloggingStocks on Thu, 10 Jun 2010 20:00:00 EST. Please see our terms for use of feeds.

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