Does the Full Moon Really Affect the Stock Market?

For as long as stock markets have existed, traders have been searching for unorthodox “signals” to help them outperform the competition. For many years, efforts were made to associate astrological signals with the movement of markets — unfortunately, with very mixed success.

But there is one signal in all the noise which is strikingly clear: Moon phases apparently do affect markets. While it may sound like pseudoscience, multiple research studies suggest that there does appear to be a correlation between the Moon’s phase and the movement of financial markets.

Why? No one knows for sure.

On first glance, you might think this can’t possibly be true. Who wouldn’t?  But the numbers don’t lie

Stock returns are, on average, 4 bps lower daily (about 5% annually) for the 15 days around the full moon than for the 15 days around the new moon. Using a 7-day window, stock returns are, on average, 6 bps lower daily (about 4% annually) on the full moon days than on the new moon days.
— Journal of Empirical Finance

In short, there does seem to be a subtle, but mathematically measurable, positive difference around the New Moon — and a measurable negative difference around the Full Moon.

For those who need a refresher, the phases of the moon are as follows:

1. The New Moon: This is the completely blackened phase where the moon is invisible
2. The Waxing Crescent: This is the first of the “crescent moons”
3. The First Quarter Moon: This is often mistakenly called a “half moon” because half the moon’s face is illuminated.
4. The Waxing Gibbous: This is the plump, “almost full” phase.
5. The Full Moon: This is the peak of the moon cycle.
6. The Waning Gibbous: This is the plump, “just past full” phase.
7. The Last Quarter Moon: This is the second of the “half illuminated” phases.
8. The Waning Crescent: This is the second and last of the “crescent moons”

Moon phase astrology and profit and loss

According to moon phase astrology, which is a sub-field of traditional astrology, the waxing phases of the Moon (numbers 1 through 5 above) are seen as “growth” phases and the waning phases (numbers 6-8 above)  are seen as “contraction” phases. Interestingly however, the research data don’t quite line up with this traditional belief.

An astrologer might at first assume that market peaks would happen somewhere around the full moon, since that’s the peak of the lunar cycle. But they don’t. Contrary to the traditional beliefs, financial markets tend to perform worse at the peak of the lunar cycle.

However, one old traditional belief which is supported by the data, comes from the belief that the full moon is a time of peak irrationality. So while full moons may happen at the peak of the traditional “growth” phase of the lunar cycle, a full moon is also the peak of the irrational phase.

We all tend to suffer from “moon madness” to one degree or another when the moon is full. It turns out, stock traders probably do too. So while the full moon might be the exuberant “peak” of the monthly lunar cycle, the reality is that it’s also peak-time for making stupid mistakes.

Exactly how much does the Moon affect stock markets?

The research suggests a rather remarkable 3% to 5% difference in performance based on the moon cycle.

As Kathy Yuan (ed: et al) writes in the Journal of Empirical Finance:

The findings indicate that stock returns are lower on the days around a full moon than on the days around a new moon. The magnitude of the return difference is 3% to 5% per annum based on analyses of two global portfolios: one equal-weighted and the other value-weighted. The return difference is not due to changes in stock market volatility or trading volumes. The data show that the lunar effect is not explained away by announcements of macroeconomic indicators, nor is it driven by major global shocks. Moreover, the lunar effect is independent of other calendar-related anomalies such as the January effect, the day-of-week effect, the calendar month effect, and the holiday effect (including lunar holidays).
— Journal of Empirical Finance 

The positive and negative effects of the moon can’t easily be explained away by other factors. The Moon’s phase for whatever reason, does appear to be at least partially correlated with the current phase of the Moon.

Whether or not you decide to check today’s moon phase before trading stocks is of course, your decision. We tend to think that while there does seem to be an interesting correlation here, you’re probably better off sticking to fundamentals.

Find the moon phase for any day with iFate’s Moon Phase Calendar