The Zodiac Calendar And Equity Factor Returns
Erasmus University Rotterdam (EUR)
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Laurentius (Laurens) Adrianus Petrus Swinkels
Erasmus University Rotterdam (EUR)
January 13, 2016
We calculate the returns for four well-known equity factor returns, the market, size, value, and momentum, for each Zodiac calendar year from 1926 to 2015. We find that point estimates of average returns for each Zodiac sign can be substantially different. The Year of the Rooster seems to be particularly good for each of the equity factor returns, while the Year of the Ox seems particularly poor. However, when we employ statistical tests, we do not find enough evidence to reject the null hypothesis of equal returns across Zodiac signs. Hence, we conclude that investment strategies based on Zodiac signs are unlikely to generate superior returns.
The Zodiac Calendar And Equity Factor Returns – Introduction
Meisami (2013) is the first academic study to investigate the returns of equity markets for the different Zodiac signs.2 He finds empirical evidence for high returns in the Year of the Rat and low returns for the Year of the Snake for the equity market in Hong Kong over the period 1964 to 2013. For the U.S. stock market over the period 1950-2013, he finds below average equity returns for the Year of the Snake and the Year of the Rooster. Other research to the Chinese calendar shows that these also can have an effect on equity markets. Yuan, Zheng, and Zhu (2006) investigate the performance of stock markets over the lunar cycle within a calendar year. Their findings indicate that stock returns are 3-5 percent lower on the days around a full moon than on the days around a new moon. Yen, Lee, Chin, and Lin (2001) and Yuan and Gupta (2014) investigate the performance of the equity markets around the turn over the lunar New Year in Asian equity markets. Their results suggest that returns are higher around the lunar New Year over the periods 1991-2000 and 1999-2012, respectively.
Beyond investing, the Asian community seems to be concerned with the lunar New Year. For example, Wong and Yung (2005) document that the number of births in the Year of the Dragon increases, as this year is associated with better prospects in life. They also analyse whether indeed these Dragon children born in Hong Kong have more success in their lives. Senbet en Huang (2012) believe that such research suffers from endogeneity problems. If everybody in society believes that Dragon children are more successful, they might have a higher chance to receive preferential treatment (i.e. selected for a better school, promoted in a job, etc) even though their objective skills are the same as children who are not born in the Year of the Dragon. Therefore, Senbet and Huang (2012) do a similar study among Dragon children in the United States, where the endogeneity problem is likely to be of minor importance. They find that if success is measured by income level, Dragon children are equally successful as all others. Our sample of U.S. equity return factors is likely to have little endogeneity problems, just as the study by Senbet and Huang (2012).
The paper contributes to the literature in at least two ways. First, we extend the sample period for U.S. equity market returns back to 1926. A time-series extension of 25 years is important, because conclusions by Meisami (2013) are based on only four and five Zodiac cycles for Hong Kong and the U.S. market, respectively. Second, we do not investigate total stock market returns, but investigate factor returns. The factor returns are excess return series of the equity market minus the risk-free interest rate, small capitalization minus large capitalization stocks, value minus growth stocks, and high momentum versus low momentum stocks. Fama and French (1993) and Carhart (1997) describe these equity factors extensively.
It is important to note that the Zodiac signs all have their positive and negative characteristics. No sign is considered good or bad in an absolute sense. Nevertheless, as stated above some years have acquired the reputation for better outcomes. In the Western world ‘Rat’ and ‘Pig’ are more likely to be associated with bad than good characteristics, this is not the case for the Chinese Zodiac signs. In Table A1 in the Appendix, we list the positive and negative characteristics associated with each of the 12 zodiac signs.
The remainder of this paper is organized as follows. Section 2 contains the data sources and research methodology. Section 3 contains the empirical results. Finally, Section 4 concludes this article.
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