Capital Markets

Bad Moon Rising?

Why a company's stock price may depend more on the lunar calendar than on its fiscal calendar.
Theresa Sullivan BargerDecember 27, 2006

For centuries, the full moon has been blamed for everything from violence — homicides, assaults, and the aggression of hockey players — to physical and psychological disorders, including suicide, vampirism, and yes, lycanthropy (the belief that one has become a wolf).

But no matter what beat cops or emergency room doctors said, study after study concluded there was no scientific link between the moon and behavior.

Now, it turns out, there may be something to the folklore. An extensive study of stock markets in 25 countries shows the lunar cycle affects stock returns, concluded University of Michigan Professor Ilia D. Dichev and Troy D. Janes, associate professor at the State University of New York at Buffalo. Their findings were published last month in the Harvard Business Review, which noted that the study, while unusual, was the “product of rigorous research.”

In the 15 days surrounding full moon dates, stock market returns are about half what they are in the 15 days around a new moon, the study found. And, unlike other studies looking at thousands of cases of extreme behavior such as suicides or crimes over a mere decade or two, the researchers studied all major U.S. stock indexes for 100 years and nearly all major stock indexes in 24 other countries over 30 years.

Dichev decided to analyze stock market data in relation to lunar cycles on a lark. “It’s a fairly simple test to do,” he says. “It was one of these things that started small — then we got the results.” His data involves decisions made by hundreds of millions of investors, he says.

“The finding is a fact,” he says, but what investors, or finance executives, make of it is another story. “This suggests there are larger sources that influence what we do and think, and there are tangible traces to this influence.”

Dichev says people frequently ask him whether they can make money off his research. “I don’t think you can make riches trading on this,” he says. “You need to have a very long horizon. You would have to trade twice each moon cycle over many years.”

But Dichev himself has benefited from the study. At cocktail parties, he says, he now has an unusually engaging icebreaker for someone in his line of work. “People don’t know what to think when I say I’m an accounting professor. They ask for advice on their taxes,” he says. Now, he says, he cites his lunar discovery as an example of his research, which usually gets a laugh — and puts a stop to the tax tip questions.

Financial executives aren’t likely to abandon their daily routines in the face of lunar power, but they can take a page from Dichev’s book. “Unless you’re in the financial accounting field, most people don’t like to talk about” financials, says Carlos Bernal, CFO of Empower Public Relations in Chicago. The lunar study is “fun. I find it humorous,” he says. “And it’s based on real data. You can’t just write it off.” Besides, he says, it’s a good way to change the subject when people start asking for financial advice.

Not surprisingly, Greg Adams, CFO of Norwalk, Connecticut-based financial data provider EDGAR Online, Inc., insists that the cycles of the moon are no substitute for reviewing and analyzing financial data based on fundamentals. Still, even he says it can’t hurt to keep the moon in mind.

“Perhaps I should time my visits with investors in light of this new finding,” he says.

Perhaps, although that could result in some complicated celestial scheduling. Dichev says his research was inspired in part by an Ohio State University professor’s discovery that when the sun shines on Wall Street, it lifts the market.

That news prompted a more pragmatic thought from TD Ameritrade CFO Bill Gerber. When Gerber, a University of Michigan grad, heard about the lunar study done at his alma mater, he immediately had this reaction: “If the University of Michigan can figure out how the moon cycles affect the Ohio State game, that would be something.”