The authors have benefited from the suggestions of Mark Kamstra, Lisa Kramer, Dan Waggoner, Dmitry Repin, Mark Fisher,Steve Smith, and Ron Zwickl. Comments from an anonymous referee and seminar participants at the Federal Reserve Bankof Atlanta, University of Virginia, Boston College, Georgia State University, George Washington University, University ofMichigan, and University of Arizona are also acknowledged. The views expressed here are the authors’ and not necessarilythose of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’responsibility.Please address questions regarding content to Anna Krivelyova, Department of Economics, Boston College, 140Commonwealth Avenue, Chestnut Hill, Massachusetts 02134, 404-869-4715, email@example.com, or Cesare Robotti, FederalReserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309, 404-498-8543, firstname.lastname@example.org.The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is available on the Atlanta Fed’sWeb site at http://www.frbatlanta.org. Click on the “Publications” link and then “Working Papers.” To receive notificationabout new papers, please use the on-line publications order form, or contact the Public Affairs Department, Federal ReserveBank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.
Federal Reserve Bank of AtlantaWorking Paper 2003-5bOctober 2003
Playing the Field: Geomagnetic Storms and the Stock Market
Anna Krivelyova, Boston CollegeCesare Robotti, Federal Reserve Bank of Atlanta
Explaining movements in daily stock prices is one of the most difficult tasks in modern finance. Thispaper contributes to the existing literature by documenting the impact of geomagnetic storms on daily stockmarket returns. A large body of psychological research has shown that geomagnetic storms have a profoundeffect 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 theirfeelings and emotions to the wrong source, leading to incorrect judgments. Specifically, people affected bygeomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute theirbad mood to negative economic prospects rather than bad environmental conditions. Misattribution of moodand pessimistic choices can translate into a relatively higher demand for riskless assets, causing the price ofrisky assets to fall or to rise less quickly than otherwise. The authors find strong empirical support in favor of ageomagnetic-storm effect in stock returns after controlling for market seasonals and other environmental andbehavioral factors. Unusually high levels of geomagnetic activity have a negative, statistically and economicallysignificant effect on the following week's stock returns for all U.S. stock market indices. Finally, this paperprovides evidence of substantially higher returns around the world during periods of quiet geomagneticactivity.JEL classification: G1Key words: stock returns, geomagnetic storms, seasonal affective disorders, misattribution of mood,behavioral finance