Physiological and psychological evidence suggesting the link between human behaviour and lunar phases has been around since the beginning of civilization. Does this mean that lunar phases affect investment decisions in individuals and consequently, stock market returns? This paper aims to assess the appropriateness of the lunar phase as an exogenous proxy for investor sentiment. Utilizing total return index (TRI) data from 52 different indices to form an equally-weighted global portfolio, the empirical evidence demonstrates significant and negative new moon effects as noted in earlier studies. However, contrary to previous studies, the full moon effect is unobserved in our investigation. To further understand the effects of the lunar phase on stock return, the paper utilizes a panel regression to investigate the different effects the lunar phase may have on countries employing a lunar calendar, stocks of different capitalization in the Stock Exchange of Thailand (SET) and whether if the lunar effects observed were influenced by calendar anomalies. The results from our regression show that the lunar effect is only significant in countries not employing a lunar calendar. Additionally, the effect is prevalent across stocks of all capitalization in Thailand, dismissing the notion earlier proposed by Yuan et al. (2013) that the observed lunar effects are only in stocks of small capitalization. Lastly, this paper concludes that the lunar effect itself is not significant in explaining the return of stock markets. However, if the date falls on either a January or a Monday, the lunar effect is amplified. Hence, the role of the lunar phase as an exogenous proxy for investor sentiment is still hugely doubted.
ARE INVESTORS TALKING TO THE MOON? Investigating the effects of the lunar phase on stock returns
Post by MSF Chula at Sunday, 31 January 2021 10:33 PM
Last updated at Sunday, 31 January 2021 10:33 PM