Heart-stopping markets and lying CEOs – 10 more stock market peculiarities
From donating money to politicians to appearing on magazine covers there are many odd indicators of stock market performance
“This reaction is irrational because the stock returns were based solely on likeability of the commercials,” the researcher said. “If the likeability of the commercials caused a subsequent increase in company sales, a stock increase would make sense, but we did not find this to be the case.”
Contrarians have long used the so-called magazine cover indicator – the idea that an investment trend may be nearing its end by the time it is publicised on mainstream magazines – to guide their investment decisions making.
Mad? Not according to a study which examined 549 covers over a 20-year period. Stocks attracting the most negative covers subsequently trounced the most-favoured companies, while positive stories “generally indicate the end of superior performance”. Some of the most famous covers include BusinessWeek’s “The Death of Equities” cover in 1979; the Economist’s 1999 “Drowing in Oil” cover, which said prices were headed towards $5 (they hit $140 in 2008); and Time’s “Home Sweet Home” cover of 2005.
Havard MBA indicator
This long-term indicator gives a sell signal if more than 30 per cent of Havard Business School graduates accept “market-sensitive” jobs, and a buy signal if the percentage falls below 10 per cent.
A contrarian indicator that seeks to indicate when a trend has become stretched, it gave a record 41 per cent reading in 2008. Other strong sell signals occurred in 2000 and in 1987 – the year Black Monday occurred.
Buy signals are less common, the last one occurring in the early 1980s, when investors had given up on stocks and the Dow index was below 1,000. The all-time low was in 1937, when just 1 per cent of graduates entered the industry.
Pitch trumps trading pits
A study of 15 international stock exchanges during the 2010 World Cup found market trades almost halved when the national team was playing, with a further drop occurring if a goal was scored.
A separate study found World Cup losses led to a next-day stock market decline of 0.49 per cent. The effect was stronger in small stocks and in more important games, and also evident after international cricket, rugby and basketball games.
International stock markets have markedly lower returns when the clocks go back, according to a 2000 study co-authored by Prof Mark Kamstra. The “daylight-savings anomaly” may be due to heightened anxiety and risk aversion following sleep pattern changes, the study said.
The claim has been disputed by other academics but Prof Kamstra, who has also published research linking seasonal affective disorder with stock returns, says the anomaly “remains intact”.
Market volatility can be bad for your health as well as your wealth. A study published in the Journal of the American College of Cardiology found that a Nasdaq fall of 40 per cent was associated with a 36 per cent increase in heart attacks. Proportionally, the effect is more severe in China, another study finding that each 1 per cent move in the Shanghai Composite Index increased heart disease deaths by 5 per cent.
The findings, said analyst firm Sanford Bernstein, indicate volatility is as dangerous as high-risk heart patients not taking cholesterol-lowering drugs.