A new lunar cycle is upon us. So what, we hear you say? What possible bearing could the state of the moon have on the professional community, those of us who ply our trades in PR, law, marketing, accounting, not to mention the financial markets? To suggest a correlation between the moon and the markets is as sensible as postulating that the earth is not round but square.
But hold on. When no less a figure than the estimable Merryn Somerset Webb reveals the results of a study into whether there could be a correlation between the lunar cycle and stock market performance even the most cynical among us should take note. And no, not because we fear that Merryn may have lost her marbles. The FT scribe makes some provocative points, which, we confess, had hitherto eluded us:
1. Did you know that a Harvard Business Review a few years ago noted that during the seven days before a new moon and the seven days after a new moon, average stock market returns are higher than at other times? Not just in the US, but all over the world.
2. Apparently, some fund managers factor such research into their work, the suggestion being that our levels of serotonin rise and fall as the moon moves (lower when the moon is new, higher when it is full). Thus our mood – and attitude towards the market – changes as they do so.
3. Next up, some new research by the technical analysis team at RBS. It looked at the performance of six different stock market indices – the FTSE 100, the S&P 500, the Dax, the EuroStoxx 50, the Hang Seng and the CAC40 – in relation to the lunar cycle. Of their findings, Somerset Webb writes:
Take the FTSE 100. The average daily change since 1986 has been 0.5522 points or 0.02 per cent, according to RBS. On a new moon day, it has been rather higher at 5.17 points or 0.11 per cent – and, on a full moon day, it has been higher still, at 6.42 points or 0.13 per cent. So about 10 times higher than average for both.
But as she rightly says, this isn’t nearly so interesting as the RBS team’s next finding:
The RBS team then looked at what happened if you traded just twice a month, on the day of a new moon (or the next trading day if the new moon falls on a weekend) and on the day of the full moon (or next trading day). If you had started with £1,000 and bought on the new moon and sold on the full moon consistently since 1984, you’d now have £12,116 – making a nice profit of £11,116. If you’d bought on the full moon and sold on the new moon, you’d have ended up with a mere £2,036.
4. Lest lunar madness now seizes you, Somerset Webb cautions that “previous studies found that while, on average, lunar trades came good, they only did so 60 per cent of the time. ” She also adds that many studies overlook sneaky little problems like transaction fees and index fund management fees.
So, what to do? Today is the first day of trading since the new moon (which appeared on Saturday), and the full moon is a couple of weeks hence on July 26. We say: buy today, sell on July 26. But then again, our serotonin levels might not be quite in order – a problem with which good old Slim Gaillard was familiar.
