Stock are Less Likely to Spring Ahead for Daylight Savings Time
Alan Greenspan once made a brief comment saying that there is a correlation between sales of mens underwear and difficult markets ahead. Apparently, the Great Maestro, could support his data with an elasticity of demand chart. The data showed that sales in underpants were extremely consistent, except just before a recession. Another stock market correlation (with likely causation), is daylight savings time and stock prices. This has been the subject of another time-consuming study of numbers by a couple of Yale College professors.
With all stock market traders eager to develop an edge in the market, over time there has been a growing interest in the impact of external factors on the stock market. A study titled “Losing Sleep at the Market: The Daylight-Savings Anomaly,” conducted by Matthew J. Kotchen and Laura E. Grant from Yale University. It explored the impact of DST on stocks. The study found that DST may have a negative impact on the market during the first week after the time change.
Kotchen and Grant’s study focused on the impact of DST on the New York Stock Exchange (NYSE) from 1964 to 2012. They found that during the first week after the springtime change to DST, stock prices tended to dip. This effect was most pronounced on the Monday following the time change, with an average decrease of 0.31% in stock prices. This effect was observed even after controlling for other factors that may have affected the stock market.
One possible explanation for this phenomenon is that the disruption to people’s sleep patterns may affect their productivity and decision-making abilities. This could lead to a decrease in trading activity and a temporary decline in stock prices. Another explanation is that the time change may lead to a decrease in trading volume due to confusion or technical glitches.
It’s worth noting that the effect of DST on the stock market, while statistically significant, is not very large and normally short-lived. The study found that the negative impact on stock prices disappeared after the first week, and there was no significant impact during the fall transition out of DST.
While Kotchen and Grant’s study sheds light on the impact of DST on the stock market, it’s important to keep in mind that many other factors have a much greater impact on stock prices. Economic indicators, political events, and company earnings reports are just a few examples of factors that can affect the stock market. Investors should not view this as significant enough to trade off of.
“Losing Sleep at the Market: The Daylight-Savings Anomaly” suggests that DST may have a small, temporary negative impact on the stock market during the first week after the time change. However, the overall impact of DST on the stock market is likely to be small compared to other factors that affect stock prices.
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