You should avoid black cats, traveling, and blind dates on Friday the 13th. But should you also avoid trading on the stock market?
Our idealized conception of the stock market is of a system that efficiently aggregates information about the value and risk of companies and assets. When Facebook announces that it's struggling to monetize mobile users, its stock price falls. Signs of trouble brewing in the Middle East shocks the price of oil on the commodities and futures markets. But even without discussing the more cataclysmic examples, there are always signs of the irrational humans working the levers of Wall Street and global finance.
Stocks tend to perform poorly on Mondays and well on Fridays - a phenomenon known as the “weekend effect.” Its cause is still debated. Some point to traders exuberantly buying on Fridays but selling when they have a case of the Mondays. Other explanations focus on how traders schedule their activities and payments or organizations' tendency to release bad news over the weekend.
Another example is the “turn of the month” or “first half of the month” effect, which describes how the majority of monthly gains in the stock market occur at the very beginning and end of each month or during the first half of the month. It is sometimes ascribed to the cash flow of hedge funds and other major investors, but its cause is equally debated and unclear.
Given the possibility for messy human dimensions to manifest themselves regularly in the stock market, a group of researchers from Griffith University and Louisiana Tech University decided to ask another question - could superstition impact stock returns?
The researchers published their results in a paper entitled “Chinese Superstition in US Commodity Trading.” They compare returns on Friday the 13th to other Fridays, citing an older paper that found an effect of Friday the 13th on market index returns, but they focus on the impact of the Chinese superstitions that days that end in a 3 or an 8 (November 3, for example, or January 28) are lucky and days that end in a 4 are unlucky. They chose the US commodities market since past work has focused on the stock market and since Chinese trading represents an average of 50% of the markets they investigated.
Sure enough, they found lower returns on unlucky days and higher returns on lucky days. In a nice bit of self-fulfilling prophecy, this suggests that - since traders are subject to both market forces and the whims of their fellow traders - financial markets could be the one place where superstitions have a basis in reality. You don't need to avoid black cats on Friday the 13th, but you should avoid scheduling your IPO that day.
However, readers should be careful about rushing out to arbitrage the stock market at these superstitious suckers’ expense. There is plenty of debate about the potential for profiting from knowledge of calendar effects like the weekend effect, but the consensus seems to be that any potential profit would be wiped out by transaction costs and taxes - and that the effects are too inconsistent to effectively arbitrage. While academic papers looking at years of stock returns can find a significant impact of these effects, they do not appear every week, month, or year.
The impact of Chinese superstitions on the commodities market appears equally unreliable. For example, the researchers found that (unlucky) days ending in 4 result in lower returns in the cotton, soybean, and copper markets, but not in the aluminum market.
In fact, with players in the finance world talking about markets rising and falling at specific times of the year for reasons they don’t fully understand - and traders that try to arbitrage those trends expressing frustration when the effects don’t appear - believers in Friday the 13th don’t look quite so crazy.