Emotion, fear and superstition in the New Zealand stockmarket

Abstract

We analyse the reaction of the New Zealand stock market to five economically‐neutral events that psychology research indicates have varying degrees of influence on emotion and mood. Contrary to behavioural finance principles, only one of these events is associated with mean or median returns that are statistically different from those on non‐event days, and even this disappears in the post‐1984 period. However, several events offer returns that differ from those on non‐event days in an economically significant manner. Moreover, the variance of returns for event days is typically much greater than the variance for non‐event days. Contrary to what theory would suggest, the market's propensity to react to economically‐neutral events is largely independent of the mid‐1980's market reforms.

Notes

Boyle is executive director of the NZ Institute for the Study of Competition and Regulation, Victoria University of Wellington; Hagan is a postgraduate student at Otago University; O'Connor is a research officer at Castalia; Whitwell is a credit manager for National Australia Bank. Work on this paper began while all authors were at Otago University. For helpful comments, we are grateful to John Howells, Vivien Pullar, an anonymous NZEP referee, and participants at the 2003 New Zealand Finance Colloquium. Peter Grundy provided valuable research assistance. Any remaining errors or ambiguities are our responsibility.

Contact author: Glenn Boyle, NZ Institute for the Study of Competition and Regulation, PO Box 600, Wellington, New Zealand; [email protected].