Total eclipse of the brain

Beware Aug. 21. It could, according to a breathless “media advisory” from the Schulich School of Business at York University, be “a bad day for stock markets.” Why? Because of the solar eclipse.

Should we liquidate our portfolios? Load up on tinned food? Head for the hills? Expect a sharknado?

My colleague Terence Corcoran recently cited a study calling economics “The New Astrology.” This press release suggests that the two disciplines are about to merge. The bad day on the markets was ostensibly predicted by Mark Kamstra, Schulich’s Canadian Securities Institute Research Foundation Term Professor of Finance, “who has studied how mood disturbances, such as that arising from seasonal depression or a time change, can impact markets.”

The release went on to say that, according to Kamstra and his co-authors, “Research shows that weather-related psychological states, such as seasonal affective disorder (SAD), can cause heightened risk aversion by investors.” But hang on. What’s that got to do with solar eclipses? In fact, if you read the actual study, “Winter Blues: A SAD Market Cycle,” it doesn’t mention solar eclipses at all. It claims that stock market returns around the world are “significantly related to the amount of daylight through the fall and winter.” That certainly suggests that “Sell in May and Go Away” has it upside down (unless you live in Australia).

I find that reading academic papers often brings on a bout of BAD (Boring Academic Disorder), combined with depression at the implied public costs of the vast amount of obscure literature reviewed therein. However, this paper, apart from the welter of impregnable statistics, is actually quite interesting, but then it needed a bit of hyping because it’s 14 years old!

According to Kamstra (circa this week), “Historically, solar eclipses have inspired great fear, and, even today, some superstition remains for many people, so the markets can expect some fallout… Investors may want to avert their eyes from market moves as well as the glare of the eclipse when the moon cuts in front of the sun later this month.”