How High the Moon?

Like baseball players and sailors, stock traders are a superstitious bunch. They consult horoscopes, wear the same pair of socks or underwear during a hot streak, and keep teddy bears around to rub for good luck. But a recent study by Gabriele Lepori, a professor of behavioral finance at the Copenhagen Business School, suggests that investors go beyond passive belief in the uncanny — they actually base investment decisions on old wives’ tales.

Lepori analyzed 80 years’ worth of data from four U.S. markets and 10 Asian countries to test whether decisions changed around the time of solar and lunar eclipses, regarded across cultures as inauspicious times to take risks or begin new ventures. The results clearly show that enough traders act more conservatively during eclipses to affect the market. During the three days surrounding an eclipse, demand drops; stock returns are lower than average; and fewer stocks change hands.

Lepori also found that traders are most superstitious during times of market upheaval like the present, when investors feel they have the least control over events. When eclipses occurred during such periods, the effect was about three times as large.

The good news, Lepori points out, is that the market generally corrects itself within a couple of days after the eclipse. But in the interim, it’s probably best to keep one eye on the stock ticker, and another on the moon.