Som much for us spending our time on technical analysis. <g>
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Sunday June 24, 9:37 am Eastern Time
The 'Sun-Damental' Approach to Stocks
By Haitham Haddadin
NEW YORK (Reuters) - Call it ``sun-damentals.''
Here's the theory behind the latest twist in stock-picking esoterica: Poke your head out of the window and check the weather before you call your stock broker. If it's sunny, go ahead and buy that stock or fund you've been eyeing, and you are likely to profit.
That's basically what two finance professors, David Hirshleifer of Ohio State University, and Tyler Shumway of the University of Michigan, put forward in a recently published study. The bottom line: It's not just fundamentals -- economic indicators and corporate news -- that move stocks, but also the weather, or ``sun-damentals.''
Yet, Wall Streeters interviewed by Reuters say they are not likely to swap the CNBC television financial network for the Weather Channel.
``Sunshine is strongly, positively correlated with daily stock returns,'' the two professors said in their study titled ''Good Day Sunshine: Stock Returns and the Weather.''
The study, which borrows its title from the 1966 Beatles hit song, is based on investigating the relation between morning sunshine and market index returns at 26 stock exchanges worldwide from 1982 to 1997, they said. This included the New York Stock Exchange, the world's largest.
``On dim, dull, dreary, depressing days, stocks will decline, whereas cheery, bright days will boost stocks,'' the study revealed. The professors found there is ``no appealing rational explanation'' for their findings, apart from ``sunlight affecting mood, and mood affecting prices.'' Rain and snow don't worsen returns, they added.
HUH?
Traders, market watchers and individual investors are
skeptical.
``There's no relation whatsoever. I have seen markets up on
a rainy day and down on a sunny day,'' said Frank Falsetti, a stockbroker with Raymond James, who was standing outside the Big Board on Wall Street in lower Manhattan.
Falsetti proved right on Monday, when The New York Stock Exchange Composite index fell 0.34 percent, despite relentlessly sunny skies. On Tuesday, another bright, sunny day, the index gained 0.1 percent by midday.
``Not in a thousand years! Whoever thought of this should get a new profession,'' said one stock broker soaking in the rays.
The professors probably will stay put. They point out people feel better when they are exposed to more sunlight, and if people are more optimistic when the sun shines, they may be more inclined to buy stocks on sunny days.
Some hard evidence points to the contrary.
The biggest stocks returns usually come in the gray days of November through January, in the dead of winter when holiday shopping and year-end bonuses put to work help lift the market, Jeff Hirsch, co-publisher of the Stock Trader's Almanac, said. The summer, by contrast, tends to be among the most sluggish periods with many investors away at the beach.
``I have come across some stuff that is just as esoteric. Some people argue that the astronomical alignment of the planets'' affects stock prices, said Hirsch. ``It's interesting, but I kind of find it like reading (J.R.R.) Tolkien and the 'Lord of the Rings.'''
SAVING FOR A SUNNY DAY
Bad moods, the professors said, tend to stimulate effort at careful analysis, while good moods may make people less critical in processing information.
So, people could be more prone to accepting new theories of how the market works after positive events have put them in a good mood. They cite the 1990s, a period of ``positive mood in America'' because of record economic growth, a bull run on Wall Street and U.S. predominance as the world superpower.
``It is tempting to conclude that this positive mood made investors more receptive to 'new economy' theories of the world, resulting in an Internet bubble,'' they said, referring to the spike in technology stocks that last year went bust.
Analysts like Peter Cardillo, director of research at Westfalia Investments, say that, although every market cycle has bursts of new investing, when these run their course, its back to fundamentals.
``Markets can and do run on emotions, and sometimes those emotions get overdone on either side of the pendulum. But I don't believe in those theories,'' Cardillo added. ``The market will always act on a fundamental basis sooner or later.''
In fact, some of the biggest market declines, like the October 1987 crash, took place on very sunny days, said Ned Collins, head of trading at Daiwa Securities America.
``Perhaps someone would like to go back to October 1929,'' he said, referring to the Great Crash of 1929. ``I would certainly take a look at the weather report for October 16th and 19th of 1987. It seems to me they were very sunshiny days and those were two of the worst days in the marketplace.
``On Friday, when we were down 100 points and everybody got a foreboding of what Monday was going to bring, I remember going home on the boat, and it was a wonderful day.''
Raymond James' Falsetti reminisces about that day, when stocks went into meltdown: ``I remember a lot of reporters wanting to talk to brokers, and a lot of helmets -- but no umbrellas.''
To some folk, though, rain or shine, it makes no difference.
``The weather and stocks? That doesn't make sense to me,'' said Jack Golden, 43, a cabdriver, parked in the afternoon near the Nasdaq Market site in midtown Manhattan.
``People buy stocks when they have money, not when the weather is nice. Those who struggle to make a buck are not going to buy stocks even if the weather is wonderful,'' he said.
Golden then put the same the question to a colleague, who retorted: ``Buy stocks? Do I look like Donald Trump?''
(Wall St. Desk, Tel 646 2236114, haitham.haddadin+reuters.com) |
