I was reading a little Economist editorial in The Week about how superstitious traders are.....
Lucky ties and auspicious numbers
The examples are fun enough. American traders with lucky ties, Japanese investors reading omens into the first auction of the year, Asian firms paying extra for anything with a 'lucky' number on it, and old J.P. Morgan himself apparently signed up to an astrology newsletter.
Then there's India, where brokers and their families gather for a special one-hour session at Diwali to make symbolic trades for a prosperous year. That's Muhurat trading, and it's no fringe thing either. This year NSE and BSE are holding it on Sunday 8 November, and the BSE has been doing it since 1957. Two major stock exchanges opening on a Sunday for an hour of good luck... and the rest of us are supposed to believe markets are run by cold-blooded number crunchers.
The Economist's punchline is that AI and quant models can spot patterns but can't tell you what happens next, and neither can astrology, so good luck telling the believers. Fair enough. But you could say exactly the same about the analysts, the fund managers and the bloke on the telly with the chart.
The moon thing that annoyingly works
Economists have actually tested whether the moon affects share prices, and a study covering 48 countries found returns were lower around full moons than new moons, by about 6 basis points a day, which the authors reckon works out at roughly 4% a year. That's not nothing!
Now, I don't think the moon is reaching down and fiddling with the FTSE. The likely explanation is mood: if enough people feel a bit gloomier or more erratic around a full moon, and enough of them are trading, then the mood becomes the market. Which is really the whole point.
Markets are made of belief
This is basically the Thomas theorem: if people define situations as real, they are real in their consequences. Merton's classic example of the self-fulfilling prophecy was literally a bank run, where a perfectly solvent bank goes bust because everyone believes it will. A share is worth what other people believe it'll be worth tomorrow. A lucky tie doesn't move the market, but a few million people believing a Diwali trade is auspicious, or that a 'support level' on a chart means something, absolutely can.
So the line between 'superstition' and 'market sentiment' is mostly about who's doing it. When an Indian retail trader buys an online course in celestial finance, it's silly. When a hedge fund pays a fortune for a model that finds patterns in last year's data and calls it alpha, it's sophisticated. TBH I'm not convinced there's as much difference as the City would like to think.
Final thoughts
The Economist treats superstition as a quaint bit of colour on top of a rational market. I'd say it's the other way round. The whole thing runs on collective belief, ritual and gut feeling, and the lucky ties are just the bits that are honest about it. Most of the 'experts' can't predict what happens next any better than an astrologer; they just charge more and wear better suits.
And if the moon really is worth 4% a year... maybe we should all be checking the lunar calendar before we buy anything. We shall see!
