Calendar Effect of Superstition

Long-time stock brokers watched the calendar carefully for market anomalies, called without surprise ‘calendar effects.’  These interruptions in usual behavior of the stock market appear related to the time of year, day of the week or time of the month.  Others see importance in the U.S. presidential election cycle.  One of the most popular calendar effects is seasonal in character.  In the northern hemisphere there is a propensity for investors to reduce equity positions in the spring in anticipation of a carefree summer and then a reloading of positions in the fall.  The habit has given way to the maxim ‘sell in May and go away.’

A calendar effect often overlooked is one with spooky overtones.  The Friday the 13^th effect is driven by a superstition-fueled fear of the number 13^th falling on a Friday.  In order to avoid bad luck, traders sell their stocks before such a trading day.  The behavior leads to an inordinate fall in prices before such calendar dates.  Additionally, traders avoid buying on Friday the 13^th, waiting until the next day to buy shares.  This causes prices to rise more than usual in the next trading sessions. 

A study published in July 2019 by the University Library of Munich in Germany, looked at stock returns of 42 companies in seven different sectors of the U.S. economy.  The study covered the period January 2010 to March 2019.  The study bore out a significant difference in low returns on trading days before Friday the 13^th and significant higher returns on trading days after these dates.

How is this possible in a rational world, driven by math and science?  Surveys have found that as many as 21 million people admit to an aversion to Friday the 13^th. 

How often would traders have to take advantages of this unusual calendar effect?    Actually, it is not that often.  However, in the Gregorian calendar that we use there is at least one Friday the 13^th each year.  There was one such date in 2016, but two days each in the years 2017,  2018 and 2019. 

There are two days in 2020.  Today is one.  Traders will have until November 13^th this year to get a strategy lined up to take advantage of this spooky quirk in trading mentality.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.