On the Rationality of Investors – Lunar Phases and Equity Returns in Poland

Abstract

Purpose – The paper examines the popular belief that the cycles of the moon affect human moods, which is then reflected in investor behaviour. Hence, the relation between lunar phases and equity returns in Poland was examined. Design/methodology/approach – New (full) moons were called nine-day windows with the centre in the new (full) moon day. Arithmetic daily index returns and average daily and cumulative returns were calculated for the session days in the new and full moon windows. Then the lunar effect on the market portfolio was observed with additional analysis for size effect, calendar month effect, and half-of-the-month effect. A robustness check tested the results. Findings – Average returns around full moon dates were substantially lower than returns around new moon dates. For size-related indexes, the results were similar. However, for small companies the differences were somewhat smaller. Average returns both for bear and bull months were positive and quite similar during the new moon phase. Average returns for full moon phases were tangibly negative for bear months and much lower for bull month as compared with results for the new moon phase. Both the lunar and the half of the month effects seemed to be important for returns in Poland. Originality/value – The study concentrated on the lunar effect for returns on the Warsaw Stock Exchange. The applied methodology is new for studying the relation for Poland.