Introduction

  • Written by 
  • 16/09/2013
The rules of thumb that actually work 2 of 4 The calendar of market quirks

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

Around the world, fortunes are made and lost daily as prices on stock markets, currency and commodity exchanges and other financial markets rise and fall. Company performance, industrial statistics, credit ratings, macroeconomics, government policy and countless other factors are major influences on such market movements. But there is a whole set of other, less obvious events and patterns throughout the year that can also have a significant impact on markets – and which might be important considerations for the timing of any investment decision.

Take religion, for example. One of the few things that Yom Kippur, St Patrick’s Day and Ramadan share in common is that they have all been shown to move markets in a significant and predictable manner.

In 2001, researchers from the University of California, Los Angeles (UCLA) analysed the impact of two Jewish holidays, Rosh Hashanah and Yom Kippur, on the S&P500 (the benchmark index for US equities), between 1962 and 2000. They found that, on average, the market returned 0.25 per cent on Rosh Hashanah but lost -0.25 per cent on Yom Kippur, which occurs just nine days later. Both results stood out from the market average daily return of the period of just 0.037 per cent.

One of the few things that Yom Kippur, St Patrick’s Day and Ramadan share in common is that they have all been shown to move markets.

These findings were backed up by a more recent study from academics at Nova Southeastern University in Florida. They analysed the Dow Jones Industrial Average (an index of 30 leading US shares) between 1907 and 2008 and found a similar pattern.

So why does one Jewish holiday boost the market while another sends it lower? The authors of the UCLA report, Professors Laura Frieder and Avanidhar Subrahmanyam, think it is because of the different sentiment that each occasion creates. Rosh Hashanah is a happy, festive celebration that creates “a positive investor mood, strong overconfidence, and consequential under-assessment of risk,” they argue. “This is likely to lead to a run-up in the current price and hence yield above average market returns.” Yom Kippur, on the other hand, is a day of regret and atonement for wrongdoing that creates a “negative mood”, making investors more risk-averse.

The same rules do not, however, apply equally to all religious holidays in all countries. When Frieder and Subrahmanyam studied Hindu holidays in the UK, for example, they found similar sentiments being expressed but no correlation between these and market trends.