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Every culture holds unique traditions, among them are ancestral taboos or beliefs known as superstitions. Taboos encompass forbidden actions passed down through generations, while superstitions involve baseless beliefs lacking scientific grounds. In today's advanced world, some modern societies dismiss old taboos and superstitions, yet a few still tightly adhere to these practices.
This phenomenon is evident even in the realm of stock market activities, be it investments or trading. Despite the rapid technological progress, investors and traders continue to make decisions based on stock analysis, either fundamental or technical. Astonishingly, even in this modern age, some investors and traders are swayed by superstitious influences in their market dealings, a result of their cultural beliefs. This seemingly irrational belief often plays a significant role in influencing investment decisions and market returns.
The Eerie Festival of Hungry Ghosts
One prevalent superstitious practice, mostly observed by Chinese Buddhists in Asian stock markets like Malaysia and Singapore, is the "Hungry Ghost Festival" or Zhongyuan Jie in Chinese. This festival holds significance in the Chinese lunar calendar, typically falling on the 14th or 15th day of the seventh lunar month. During this time, many Chinese individuals meticulously avoid specific actions they believe could bring bad luck, including starting new businesses, making fresh investments, getting married, launching new companies in the stock market, or engaging in daily life activities. Regardless of whether they are fund managers, institutional investors, or retail traders, adhering to their cultural beliefs, they are significantly influenced by superstitions when making investment choices.
Stock Market Returns and the Hungry Ghost Festival
Interestingly, during the Hungry Ghost Festival, stock prices often appear weaker and experience declines. This phenomenon is attributed to decreased trading activity due to superstitions and taboos associated with the festival. These beliefs deter individuals from engaging in stock trading and investment activities, fearing potential misfortune. Historical data supports that superstitions indeed influence investors and traders, resulting in observable fluctuations in stock returns. For instance, the Philippine Stock Exchange Index, Shanghai Composite Index, and Hang Seng Index have recorded declines during the Hungry Ghost Festival over the past ten years, coinciding with the reduced trading volume during the festival period. Could this be a mere coincidence?
The Hungry Ghost Festival and Real Estate Transactions
A study focused on real estate transactions during the Hungry Ghost Festival in Singapore yielded intriguing results. While there was no significant anomaly in investment returns during this period, demographic data indicated that individuals under 40 years old were more inclined to disregard superstitious beliefs when purchasing property, as property prices were typically lower. This indirectly reveals the generational gap in belief systems, with older generations holding firmer to their cultural superstitions compared to their younger counterparts.
Haunted by the Ghosts?
Are they fearful or fearless? Their actions seem to be driven by the fear that adhering to market activities during the Hungry Ghost Festival might lead to bad luck. While the connection between this festival and investor behaviour remains unclear and inconclusive, it raises fascinating questions about the role of superstitions in stock market decisions. Notably, the festival coincides with the holiday season for foreign fund managers (from America and Europe), resulting in decreased market activity. Similarly, the festival compels many wealthy Chinese investors to prioritize their traditions, consequently affecting market dynamics.
Whether cultural beliefs and superstitions significantly impact investor decisions in the stock market still remains a puzzle waiting to be solved. However, considering existing research that links behaviour during market activities to stock returns, it's evident that cultural superstitions do indeed wield an influence on this topic.
*Note: This article is based on the research by the author titled “The effect of Hungry Ghost Festival (HGF) on stock market returns and volatility: An empirical analysis of Asian stock markets on August 20, 2023 in IIMB Management Review.”
Farid W. Zakaria is a content creator under the Newswav Creator programme, where you get to express yourself, be a citizen journalist, and at the same time monetize your content & reach millions of users on Newswav. Log in to creator.newswav.com and become a Newswav Creator now!
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