TAILIEUCHUNG - Playing the Field: Geomagnetic Storms and the Stock Market

For an alternative summary of our . return results, Figure 1 presents a graph of new moon vs. full moon annualized mean daily returns for the 15-day specification. In interpreting the graph, it is useful to keep in mind that the returns for the DJIA and the S&P 500 exclude dividends, while dividends comprise the bulk of total stock returns up until the last 30 or 40 years (., Fama and French 2001). Thus, it is not surprising that the returns for the DJIA and the S&P 500 (which start a lot earlier) are lower than those for. | Playing the Field Geomagnetic Storms and the Stock Market Anna Krivelyova and Cesare Robotti Working Paper 2003-5b October 2003 Working Paper Series Federal Reserve Bank of Atlanta Working Paper 2003-5b October 2003 Playing the Field Geomagnetic Storms and the Stock Market Anna Krivelyova Boston College Cesare Robotti Federal Reserve Bank of Atlanta Abstract Explaining movements in daily stock prices is one of the most difficult tasks in modern finance. This paper contributes to the existing literature by documenting the impact of geomagnetic storms on daily stock market returns. A large body of psychological research has shown that geomagnetic storms have a profound effect on people s moods and in turn people s moods have been found to be related to human behavior judgments and decisions about risk. An important finding of this literature is that people often attribute their feelings and emotions to the wrong source leading to incorrect judgments. Specifically people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions. Misattribution of mood and pessimistic choices can translate into a relatively higher demand for riskless assets causing the price of risky assets to fall or to rise less quickly than otherwise. The authors find strong empirical support in favor of a geomagnetic-storm effect in stock returns after controlling for market seasonals and other environmental and behavioral factors. Unusually high levels of geomagnetic activity have a negative statistically and economically significant effect on the following week s stock returns for all . stock market indices. Finally this paper provides evidence of substantially higher returns around the world during periods of quiet geomagnetic activity. JEL classification G1 Key words stock returns geomagnetic storms seasonal affective disorders misattribution of .

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