National Post



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.”


Cute! The latter half of this statement suggests the prof is speaking tongue in cheek, but the former bit clearly warns investors to expect “some fallout.” Was he suggesting that sensible people bail out of the market in the next couple of weeks on the basis of superstiti­on? Is he trying to promote a panic? One suspects that very few who invest in stocks are going to look up in the sky on Aug. 21 and imagine that a dragon is eating the sun. The media advisory declared that Kamstra was “available to comment on potential negative impact on the markets,” so I called him up and asked him exactly what he expected the impact to be. He said there “could be volatility,” but could offer no plausible explanatio­n why, perhaps because total eclipses come along way, way less often than seasons.

The solar eclipse “angle” seems to be an all-too-typical attempt to “sex-up” an academic study — in this case a very old one — and get publicity for an academic institutio­n by giving it current relevance. Kamstra admitted that it was indeed an attempt to get some media attention. Mine obviously wasn’t the sort he was expecting.

This is one reason why the credibilit­y of both science and economics has been undermined in recent years.

SAD, apart from being one of Donald Trump’s favourite words, is indeed a medical condition that links shorter winter days to depression. Depression allegedly heightens “risk aversion.” The study thus purports to establish that daylight, depression and risk aversion result in a “SAD effect.”

Other things being equal, “stock returns are shown to be significan­tly related to the amount of daylight through the fall and winter.” There is a reported difference between the hemisphere­s. When the North is up, the South is down, and vice versa. Overall, concludes the Schulich blurb, the “economic magnitude of the SAD effect is large.” Or at least it was 14 years ago.

Given the impact of subsequent proverbial fear and greed, from the subprime crisis to Trump euphoria, isn’t trying to separate out the impact of the length of the day a little, er, marginal? Certainly, the SAD effect might be a factor in deciding when to launch an IPO, but if it is I’m pretty sure the investment industry would have already spotted that.

Taking the geographic­ally extreme stock markets of Australia and Sweden, the study notes that from the early 1980s, for a period of 20 years, if, instead of investing half in each country and leaving it there, an investor had switched to investing all her portfolio in the countries during their respective winters, she would have made an additional annual return of 7.89 per cent.

This appears truly dramatic. Sorry, I mean it must have appeared truly dramatic 14 years ago. So I asked Kamstra whether hedge funds hadn’t immediatel­y leapt on this insight and thus made the differenti­al disappear. He said that some had investigat­ed the impact of SAD, but interest appeared to have died. One wonders if the Swedish/Australian arbitrage opportunit­ies were ever really there once you take trading and currency exchange costs into account. The great thing about markets is that they don’t stay irrational for long.

I suspect that very few of the media will read this aged study, but in that case shouldn’t the media advisory more accurately reflect what it said, rather than trying to pull the eclipse over journalist­s’ eyes, not to mention suggest a market panic on Aug. 21?

If Schulich just wanted some publicity, well, here it is, I guess. Be careful what you wish for.

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