KASILINGAMLINGARAJA Lunar Effect and Stock Market

S M AR T
Journal of Business Management Studies

(An International Serial of Scientific Management and Advanced Research Trust)
Vol - 9 Number - 2 July-December 2013 Rs. 400
ISSN 0973-1598 (Print)

ISSN 2321-2012 (Online)
M. SELVAM, M.Com, Ph.D

Founder-Publisher and Chief Editor
SMART Journal is a Professional, Refereed International and Indexed Journal. It

is indexed and abstracted by Ulrich's International Periodicals Directory, Intute
Catalogue (University of Manchester) and CABELL'S Directory, USA and ABDC
Journal Quality List, Australia.
SCIENTIFIC MANAGEMENT AND ADVANCED RESEARCH TRUST

(SMART)
TIRUCHIRAPPALLI (INDIA)
www.smartjournalbms.org
ISSN 0973-1598 (Print) ISSN 2321-2012 (Online)
LUNAR EFFECT AND STOCK MARKET

Kasilingam . Lingaraja
Ph.D. Research Scholar, Department of Commerce and Financial Studies,
Bharathidasan University, Tiruchirappalli, Tamil Nadu, India.
E-mail: [email protected]
Abstract
This study discusses the relation between lunar phases and stock market returns. The lunar
effects have been validated in the physical and biological sciences. However, until recently
such effects have not been largely researched, though not completely ignored in the academic
literature of financial economics. This study proposes to examine whether there is a lunar
influence on stock prices. Moreover, the lunar effect is independent of other calendar-
related anomalies such as the January effect, the day-of-week effect, the calendar month
effect and the holiday effect. Investors mainly adopt fundamental analysis and/or technical
analysis as the approach to security analysis in managing their investment in stock market.
However, both the approaches fail to help the investors to determine proper timing of entry
and exit from trade. But lunar effect deals with prediction of prices of stocks/index based on
planetary positions.
Key words: Lunar Effect, Academic Literature, Financial Economics, Calendar-Related
Anomalies, Fundamental Analysis and Technical Analysis.
1. INTRODUCTION moon.htm). The ew Moon occurs when the

Moon is between the Earth and the Nun. Suring
The term “moon cycle” (or “lunar
the ew Moon, nights are the darkest as the
cycle”) refers to the moon’s continuous orbit
Moon cannot be seen for most of the night since
around the earth. As the moon orbits the earth,
it is obscured by the Earth. The opposite of the
its appearance (the “phase”) changes and thus
new Moon is the Full Moon which occurs when
gives us an indication of the moon’s progress in
the Earth is between the Moon and the Nun.
the cycle (http://www.moonconnection.com/
The moon is at its brightest when it is full and it
moon_cycle.phtml). When the Moon appears
shines all night (http://wiki.answers.com/Q/
perfectly round in the sky, it is known as “full
what does New Moon Mean).
moon,” indicating that the disc of the Moon is
full or complete. This happens on an average 2. RELEVANCE OF LUNAR EFFECT
every 29 days and advances in astronomy have AND STOCK MARKET
allowed scientists to carefully predict their Every two weeks the whole world
patterns. Many traditions and superstitions are eDperiences a new moon and roughly two
associated with the full moon in almost every weeks later, a full moon is observed, in an
culture on Earth, especially when the moon ongoing cycle. The phase of the moon is
becomes eclipsed, as will happen periodically important for one reasonx nocturnal illumination.
(http://www.wise geek.org/what-is-a-full- :ow much light at night time affects plants
NMAHT Rournal of Jusiness Management Ntudies Bol. 9 o.2 Ruly - S ecember 2V01 33
(photoperiodism - flowering) and animals moons and the days around new moons (using
(around the full moon, day animals can hunt or 1V years data) in seven countries. ‘t is clear
perform other activities and be hunted by other from the chart that the stock return in the market
day animals (sub8ect to cloud cover)). Artificial around ew Moon was greater as compared to
lighting has barged its way into this cycle in the the stock returns around Full Moon.
last century but modern humans have acted on 5. STUDIES ON THE LUNAR EFFECT
and reacted to the moon’s illumination patterns AND STOCK MARKET
for over 2VV,VVVyears. No even if its light matters Previous literature studied the effect of
less to us now, our reactions to its phases are cyclical and lunar events on stock returns.
jhard wired’ by evolution and critically the whole Dewey (1971), in his study on lunar effects in
global population eDperiences the same stock market, argues that the moon, which
illumination eDtremes at the same time. traverses an approDimately 29-day cycle around
the earth, influences human behavior. The word
There is eDtensive psychological and jlunacy’ came into common use because of a
biological literature demonstrating that the lunar general belief that certain forms of insanity
cycle can heavily influence our moods. A full occurred in a particular phase of the moon.
moon increases our tendency to feel depressed Danzl.D.F (1987) eDplained the moon’s
and pessimistic and there is a higher rate of perceived impact on emergency medicine and
suicide around full moons. This may reflect the a survey was conducted using a modified J elief.
fear and tension surrounding increased nocturnal ‘n Iunar Effects (BILE) Ncale. Eighty percent
predator action, historically or psychological of nurses working in emergency department
issues resulting from sleep deprivation in night and L64 of emergency physicians, believe that
light. No investors may feel more inclined to stay the moon affects patients. ‘n the same vein,
out of the stock market at or near that time or to Saunders (1993) shows that market returns
sell out of positionsx emotions trumping on cloudy days are lower than during the sunny
ob8ectivity. A correlation between stock market days. %ther studies document how mood and
returns and lunar phases was observed by behavior of individuals affect stock market
Dichev, Yuan and Hickey in three separate returns. De Castro and Pearcey (1995)
studies. There is a positive pressure for the stock investigated the impact of moon cycles on market
market around new moons and a negative indeD returns. They observed Moon Phases
pressure around full moons. A lunar cycle takes (MP) Effect according to which the difference
between the stock returns on the new moon
8ust under 1V days, which means new moons
dates and those on the full moon dates, was
and full moons do not fall at the same time each
statistically significant. Dichev.I.D. and T.D.
month but gradually move. This means we are
Janes (2001), in their study, “Lunar cycle
not mistaking a seasonal phenomenon related
effects in stock returns”, found that people
to month-end or mid-month. were more optimistic during new moon periods
3. OBJECTIVE OF THE STUDY than during full moon periods. Hirshleifer and
The ob8ective of the study is to overview Shumway (2003) recorded a significant
the relevance of lunar effect in the stock market. correlation between sunshine and stock market
returns. Yuan et al (2006) reviewed the impact
4. ANNUALIZED RETURNS IN G-7
of lunar phases on stock market returns and
COUNTRIES
observed that there was decline in return of 14
Chart -I shows the differences in stock to O4 per annum on a seven day window around
market returns between the days around full a full moon as opposed to days near a new
Lunar Effect and Stock Market 39

moon. Shetty.S and Haensly.P (2007) members, J harathidasan Gniversity for their
investigated the psychological aspect of guidance and support to prepare this
investors during the period of lunar cycles and manuscript.
analysed the full moon effect and the new moon
effect on the stock market. J ut the eDamination 7. REFERENCE
of stock market indices showed no evidence of Danzl, D.F., 1987. I unacy. Rournal of Emergency
a full moon or a new moon. Medicine O, 90U9O
From the above literature, it is clear that De-Castro, J.M. and Pearcey, S.M. (1995) I unar
people believe that certain forms of insanity rhythm of the meal and alcohol intake of humans.
occurred in phases like Full Moon and ew Moon. Physiology and J ehaviour, O–, 619-666.
6. CONCLUSION Dichev, I.D. and T.D. Janes, 2001, I unar Cycle
Effects in Ntock Heturns, Rournal of Private
From the above discussion, it is clear
E7uity L, 3-29.
that ew Moon S ay and Full Moon S ay did
have some impact on stock prices. The Hirshleifer, D., 2001. ‘nvestor psychology and asset
importance of auspicious day in stock market pricing. Rournal of Finance OL (6), 0O11U 0O93.
investment further 8ustifies the Mahurat Trading Hirshleifer, D., Shumway, T., 2003. 5 ood day
(also pronounced Muhurat). Though Muhurat sunshinexstock returns and the weather. Rournal
trading in the stock market happens for about of Finance O3, 0VV9-0V12.
an hour on the S iwali S ay, the NenseD closes John Hampson, 2012, The influence of the sun on
on a higher note on the Muhurat Trading S ay. the financial markets and the macro
Most traders buy on this day. : ence further economy, httpxqqsolarcycles.files.wordpress.comq
research could be conducted in ‘ndia on a 2V02qV1qtrading-the-sun.pdf
periodical basis regarding the impact of ew Saunders, E.M.J., 1993. Ntock prices and Wall Ntreet
Moon and Full Moon on share price. weather. American Economic Heview 31, 011–U
016O.
Acknowledgement
Yuan, K., L. Zheng and Q. Zhu, 2006, Are ‘nvestors
The author would like to thank
Moonstruck/ I unar Phases and Ntock
S r. M. Nelvam and S r. R. 5ayathri, faculty Heturns, Rournal of Empirical Finance, 01 (0), 0-21.
Chart- I
Annualized Returns in G-7 Countries
NourcexS ichevqRanes (John Hampson 2012)
NMAHT Rournal of J usiness Management Ntudies Bol. 9 o.2 Ruly - S ecember 2V01 9V

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S M AR T

Journal of Business Management Studies

ISSN 0973-1598 (Print)

M. SELVAM, M.Com, Ph.D

SMART Journal is a Professional, Refereed International and Indexed Journal. It

SCIENTIFIC MANAGEMENT AND ADVANCED RESEARCH TRUST

LUNAR EFFECT AND STOCK MARKET

1. INTRODUCTION moon.htm). The ew Moon occurs when the

Lunar Effect and Stock Market 39

NourcexS ichevqRanes (John Hampson 2012)

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