The Pacquiao Indicator

This is one study I just did for the fun of it. The US markets have a number of crackpot indicators which market journalists sometimes quote such as the Superbowl Indicator and the Skirt Length Theory. These indicators have been pretty accurate, although they fall into the category of spurious correlations.

I’ve come up with my own spurious indicator, and one which features a popular figure in Philippine contemporary history: Philippine Boxer Manny Pacquiao.

You can check out these websites for the career history and biography of Pacquiao:

http://en.wikipedia.org/wiki/Manny_Pacquiao
http://www.mannypacquiao.ph/
http://boxing.about.com/od/records/a/pacquiao.htm

To date, Pacquiao has a distinguished fight history: 46 Wins, 3 Losses, 2 Draws, 35 Knockouts – counting his victory against Diaz today, that’s 47 wins and 36 Knockouts. Like the spurious correlation of the superbowl to the US markets, we might wonder at the effect of a Pacquiao fight on the PSEi.

If Pacquaio Wins, The Market Loses First, Then Wins Later

Although complete fight records for Pacquiao are available in the websites above, let’s focus on his fights since 2000, when he started to get the limelight and world recognition. We can superimpose the dates of his fights and the subsequent performance of the PSEi the following trading day and several days after:

Taking the cumulative performances of the fights we get the following table and chart:

How’s that for an interesting trend? In general Pacquiao fights indicate poor performance for the PSEi in the trading day immediately following a fight losing 125 points cumulatively, however 20 days after, the Index is usually higher gaining cumulatively 246 points.

If Pacquiao wins, the decline immediately following a fight is lower, about 55 points, while the 20 day profit is even higher at 288 points. The performance after a draw is abut the same as a win, however, after a Pacquiao loss, the market doesn’t recover.

For wins, a Knockout is best, as the market immediately gains after the fight. However Technical Knockouts are the worst performing, losing more immediately after the fight, gaining after 10 days, but giving it back after 20 days. Decision wins are generally good as the market hardly loses any points after the fight and gains more after 20 days.

The Longer Pacquiao Fights, The More The Market Reacts

Ignoring fight result and just focusing on the number of rounds of each fight, we can draw a correlation with the length of the fights and the magnitude of the subsequent PSEi move, up or down:

The data shows positive correlation with the length of the Pacquiao fights with the magnitude of the index move the next day (0.52), 10 days after (0.25), and 20 days after (0.33). Generally, the longer the fights, the more pronounced the subsequent move will be:

Distilling the above into trading rules:

• After every Pacquiao fight, expect the market to tank tomorrow, but gain over the next 20 days.
• If Pacquiao scores a Knockout, expect the market to fly tomorrow. If Pacquiao scores a TKO, expect the market to tank severely and barely recover.
• If Pacquiao loses, expect the market to tank, period.
• The number of rounds fought will dictate the extent of the market’s subsequent decline or gain.

As of this writing, Pacquiao just dusted off Diaz by KO in 9 rounds.

Holy crap.