Friday, April 13, 2012

Bad Luck in the Market on Friday the Thirteenth

Out of curiosity I looked into major declines in the U.S. equity market indices to see if there might be some correlation with the long-held superstition that the 13th day of the month falling on a Friday is bad luck.  The first instance I found was Friday, October 13, 1989 when investors sold off equities in response to a breakdown in negotiations for a leveraged buyout of UAL Corporation, the parent company of United Airlines. The Dow Jones Industrial Average dropped by 6.9% or 190.58 points on that day.  It is now known as the Friday the Thirteenth Mini-Crash.

After reading this I had to pause  -  190.58 points.  What is so bad about that?  What were they wimps back then?  Two hundred point gyration in one index or another seems to have become commonplace.  I checked and nineteen of the largest point declines in the DJIA have occurred since 1989 when the UAL news was reported to have set investors on edge.  How about September 29, 2008, when the Dow dropped by 777.68 points?  That was a 7.0% drop and certainly unnerving.  The second largest point loss was just a month later in October 2008, when the Dow shed another 733.08 points or 7.87%.  Neither occasion was on Friday or the 13th.

Of course, the largest drop in the Dow on a percentage basis occurred more than twenty years ago on October 19, 1987.  Now known as Black Friday with its own special bad luck, the day ended with the Dow reduced by 508.00 points.  While point loss was smaller, it represented a significant portion of the Dow at the time  -  a loss of 22.61%.

Interestingly, a survey completed in the first days following the so-called 1989 Mini-Crash found that only about a third of investors had even heard of the UAL deal or the breakdown in the negotiations.  At least half of respondents said they did not hear about it until after the market closed that Friday.  The survey suggests there is a very weak link between the news item and the drop in the Dow.  On the other hand it might demonstrate that investors back then were as prone to crowd behavior as they are now.  If one sells then all must sell.  That can occur on any day of the week.

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