Nike’s Billion Dollar Shoe

On February 20, 2019, Duke Men’s Basketball was competing against UNC Chapel Hill when start forward, Zion Williamson, planted his left foot and punctured a hole in the side of his shoe. This is one of the highest watched games, even exhibiting the attendance of former President, Barack Obama, and is watched by millions on television. The resulting shoe rupture left Zion on the court holding his knee, which was hurt in the process.

The resulting media response demonstrated the impact that the news outlets attributed the shoe damage to the parent company, Nike. Many of the responses discussed how Nike’s stock price was taking a hit in the pre-market trading, dipping as much $1.72 prior to the opening bell on February 21. While the media was discussing the negative business impact of the shoe, it also presented an opportunity to exam the statistical significance of the shoe using an event study.

Markets are thought to be efficient in stock price, meaning that the known information about a company is reflected in the share price (Fama, 1998). If this is the case, then what should lead to changes in price are new information (Coates & Humphreys, 2008). However, it has also been observed that negative media news has a predictable pattern on share price causing a drop on the day of the news, but the price rising to pre-fall price over the next few days (Tetlock, 2007). The Nike shoe provided an example to examine if this was indeed the case.

Prior to the game, Nike closed trading at $84.84 per share and opened the following day at $83.57, a decrease of $1.27 or 1.5%, which resulted in a decrease in market cap of approximately $2Billion! Over the course of the day, Nike’s share rose and it closed on 2/20/19 at $83.95 and opened the following day at $84.20. Its closing price on the afternoon of $84.76 was close to the pre-shoe incident, thus supporting a short term drop in price that regained its level over the resulting few days. The statistical analysis predicted a percent price decrease on 2/20 of 1.32%, which did not achieve statistical significance (p 0.199). Thus, this price decrease, while having a market cap loss of $2Billion was not an unusual occurrence for Nike’s stock.

Conclusion

• There is a difference in media news and empirical analysis. While there was a drop, it did not reach statistical significance
• Nevertheless, Nike’s stock followed an established pattern that could present opportunity for buying the dip for a short term trading gain

References
Coates, D. & Humphreys, B. (2008). The effect of on-field success on stock prices: Evidence from Nippon Professional Baseball. International Association of Sport Economists. Working Paper Series, Paper number 08-05.
Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49, 283-306.
Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. The Journal of Finance, 52(3), 1139-1168.