Superstitions and stock trading: some new evidence

Abstract

We examine the potential effect of superstitious beliefs on stock trading in four Asian-Pacific countries with deep Chinese cultural heritage (China, Hong Kong, Singapore, and Taiwan). We focus on market responses to days that are superstitiously deemed in the Chinese cultural as either lucky or unlucky. Our regression results from daily data over 2 January 1991 to 30 December 2011 suggest that unlucky days (particularly day 4 and Friday the 13th) generally exhibit higher stock returns. However, our results remain generally consistent with market efficiency since a trading rule based on this numbering pattern fails to produce any significant abnormal profits after taking into account transaction costs.

Keywords:

• calendar anomalies
• market efficiency
• lucky and unlucky numbers

JEL Classifications:

• G14
• C12

Acknowledgements

The authors wish to thank an anonymous reviewer for several useful comments.

Notes

1. Superstition is a rigid belief that an event supernaturally causes another but without any apparent physical process linking the two events. For example, modern apartment buildings in Hong Kong have no 4th, 13th, 14th, and 24th floors because Chinese believe that these numbers are unfortunate.

2. A notable exception is Brown, Chua, and Mitchell (2002) who examine the superstition effect on stock price clustering in several Asian countries. They report that the relationship is noticeable around the Chinese New Year and the Dragon Boat and Mid-Autumn festival periods. Brown and Mitchell (2008) also investigate the relationship between superstition and stock price clustering in China.

3. For comparability, our sample also includes the US market in which superstitious behavior appears rare. Unlike the Asian-Pacific markets that are dominated by individual investors, the US market is dominated by institutional investors that are less sensitive to superstitious beliefs. Furthermore, our results intend to update the US evidence discussed in Kolb and Rodriguez (1987) and Dyl and Maberly (1988).

4. Psychology literature (e.g., Burger and Lynn 2005; Schippers and Van Lange 2006) suggests that people usually act superstitiously when they are highly uncertain about the outcome of an important event with the strong perception that the outcome is outside their control, ingredients that clearly characterize stock trading.

5. As discussed below, our regressions also include dummy variables to account for possible effects from the recent global financial crisis.

6. The start of the sample is dictated by data availability for China.

7. As in Table 2, adding the control variables does not markedly diminish the significance of the superstition price effects in Table 3 except for Friday the 13th in China which became significant at the 10% level.

8. Indeed, our evidence deduced from the stock markets in the Asian-Pacific region confirms the results reported recently by Chung, Darrat, and Li (2014) for commodity trading.

Additional information

Funding

Bin Li thanks Griffith University for financial support under the 2011 Griffith University New Researcher Grant Scheme, Project No: 40730.

Notes on contributors

Richard Chung

Richard Chung is an associate professor at the Department of Accounting, Finance and Economics, Griffith University, Australia. He received his PhD degree from the Ohio State University, USA. His research interests include corporate governance and capital market. His latest publications are Corporate Ownership and Control and Review of Pacific Basin Financial Markets and Policies.

Ali F. Darrat

Dr. Ali F. Darrat is the Chase Bank Endowed Professor of Finance at Louisiana Tech University. His research interests include capital markets, monetary policy and applied macroeconomics. He has published over 180 articles in peer-reviewed journals like Journal of Financial and Quantitative Analysis, Review of Economics and Statistics and Journal of Banking and Finance. His PhD is from Indiana University-Bloomington.

Bin Li

Dr Bin Li is a lecturer in finance at Griffith University, Brisbane. His research areas include empirical asset pricing, investments and portfolio management. He has published over 30 international peer-reviewed journals such as Journal of Banking & Finance, Journal of Business Research, and Australian Journal of Management. He holds a PhD in finance from the University of Queensland.