Do superstition and eclipses matter for the stock market?

Gabriele Lepori has a new paper.

Psychological research documents that individuals are more likely to resort to superstitious practices when operating in environments dominated by uncertainty, high stakes, and perceived lack of control over the outcomes. Based on these findings, we suggest that the stock market represents an ideal breeding ground for superstition and then test whether superstition-induced behavior affects investment decisions. Our empirical analysis focuses on some beliefs associated with eclipses, phenomena that are typically interpreted as bad omens by the superstitious both in Asian and Western societies, and we employ a dataset containing 362 such events over the period 1928-2008. Using four broad indices of the U.S. stock market, we uncover strong evidence in support of our superstition hypothesis in four distinct ways. First, the occurrence of negative superstitious events (i.e. eclipses) is associated with below-average stock returns, which is consistent with a diminished buying pressure coming from the superstitious. Second, the size of the superstition effect is estimated to increase in times of high market uncertainty and when eclipses draw wide media coverage and public attention. Third, the negative performance of the market during the superstitious event is followed by a reversal effect of similar magnitude (10 basis points per day) on the subsequent trading days. Fourth, eclipses are accompanied by a trading volume decline. When we extend our analysis to a sample of Asian countries, we find analogous results. The patterns we document are inconsistent with the Efficient Market Theory, as eclipses are perfectly predictable events.

In other words, eclipses are bad days for buying stocks.  Maybe others don't want to make a commitment during the time of a possibly bad omen or maybe they're outside watching.  Trading volume is low.  After the day of the eclipse, there is a one to three day window, during which the lower returns are reversed.  So ideally there are buying opportunities right after the eclipse with (minor) extra-normal profits available.  The final section of the paper looks at Asian stock market returns on days of eclipse and finds comparable results; I wonder if this would extend to potentially unlucky days?

So how were Indian returns today?  (Check here).

Here is a John Nye and Noel Johnson piece on how Asian children do (better!) if they are born in the Year of the Dragon.


This reminds me of the first Ph.D.field exam that I took, which was in Monetary Theory. One of the main questions was: Does monetary policy matter. Discuss." Aside from the standard sorts of weaving in the literature of the time, I recall that an overall thesis of mine was that no matter how much nominal money supply is in theory irrelevant, if other people believe it to be important and make real decisions based on it, then it matters in a real way. I passed the exam with a high pass and haven't read in that field since.

Anyway, same thing here. If some people are superstitious, then the superstition re. eclipses matters.

Does this mean that we are going to see "luck arbitrage" in the near future?

"In other words, eclipses are bad days for buying stocks."

Isn't that the reverse? If stocks go up less on eclipse days, but then go up more on the following days (the author's third point), then don't I want to buy (and avoid selling) on eclipse days?

I agree with Craig. What would Warren Buffett say to the idea of buying into a rising stock price?

This type of work falls directly under the discussion in:

Homo economicus Evolves
Levitt and List
Science 15 February 2008: 909-910
DOI: 10.1126/science.1153640

I think of technical analysis as a superstition.

When will the superstition that leads court intellectual economist to believe that inflation is better than deflation finally be done away with?

"we suggest that the stock market represents an ideal breeding ground for superstition and then test whether superstition-induced behavior affects investment decisions"

And all without mentioning technical analysis with chart patterns...

In Asian cultures, especially in China, being born in a Year of the Dragon is seen as especially lucky, like the number 8.

I am not Asian, but when I first met my Chinese girlfriend's mother (who became my mom-in-law and who was and is a global traveler and at that point had lived in the US for at least 15 years), among the first questions she asked me was my birthday. When I told her, she immediately told me I was born a dragon and that was a sign of great luck.

And you can bet that Asian kids born in a Year of the Dragon are told the same thing.

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