Sheer Lunacy

One of the most exciting bits of research in a long time has crossed my desk: Sheer Lunacy staring at the heavens From the RBS Equity Research team - 7 July 2010, sorry I can't paste a link.

"This paper presents a study of correlations between the moon phases and behaviour of financial markets, and suggests a medium-to-long term trading strategy, which can significantly increase profits. It also takes a quick look at planetary alignments and what could be significant in terms of timing for the coming weeks (really bad for stocks).

For many years, people have been monitoring relations between natural phenomena and industrial performances or markets behaviour in order to be able to estimate future performance and adapt to changes to either maximise the profits or minimise losses. In many cultures, it is well accepted that moon phases could influence peoples’ behaviour, (90 countries in the world today use the Lunar calendar as the basis for time measurement), whereas scientists established its relation to rising and low tides. New moon traditionally symbolise the period of low energy, or energy accumulation period, whereas the time of full moon is the period of high energy or spending period. The question arises of whether this observation could be extended to markets behaviour.

In this paper, we study the performance of 6 indices FTSE 100, S&P 500, DAX, EUROXX 50, Hang Seng, CAC 40 for a period of several decades.

Three scenarios are studied: investing £1000 in an index and holding it for the considered period, and two types of trading strategies, which are described below. The first strategy is buying an index worth of £1000 on the new moon, selling it on the next full moon (usually it is in 14-16 days) and then repeating the process: buying the index worth of the money left after the previous transaction on new moon and selling it gain on the full moon. The second strategy is
opposite to the first one, implying buying an index worth of £1000 on the full moon, selling it on the next new moon, and repeating these steps further.

If an investor had invested £1000 in FTSE in 1984, by now he would have approximately £5,130 by holding the index, which represents index performance. Whereas trading FTSE according to moon phases would make a big difference. First, consider buying FTSE on the new moon and selling on the full moon, this would result in £12,116 overall figure for the same period (Figure 1). It means more than double the profits: £11,116 versus £4,130. Contrary, buying on full moon and selling on the new moon would result in only £2,036 overall, as shown in the same Figure. This analysis supports the theory of a correlation between index prices and moon phases.
The similar behaviour is observed in other markets. Figure 2 presents the study of S&P 500 index versus moon phases for the period since 1928 till 2010. Having invested £1,000 in S&P in 1928, by now would outcome in holding £63,864 worth portfolio, while by implementing the proposed moon trading strategy, the value of portfolio would have been £1,502,689."


The evidence is in! Invest at the new moon, sell at the full moon and you outperform!

I've been wasting my time looking for something more fundamental.