Securities Market Efficiency and the Reigning Super Bowl Champions
The vulnerability of stock prices has long intrigued investors and researchers. Beating the market has an inescapable appeal. The overwhelming evidence that regular above average returns are denied to all but those with inside information has not slowed efforts to find market errors or tap into profitable trends. One reason for hope is that past studies have never truly resolved how long securities must be held before a particular trading strategy can be measured. Pankoff has proposed that the market for bets on National Football League games can serve as a proxy for the securities market. Examining recent studies using Pankoff's analogy reveals that although bettors who remain objective may earn abnormal profits by betting against the recently crowned Super Bowl champion, a more significant implication is that participants in well functioning markets exhibit irrational behavior in response to important or unexpected events. Even more fundamental, market participants misperceive what is important or unexpected.