Extra Credit

Extra Credit

Psychologists say there is a link between geomagnetic storms in the atmosphere and depression, anxiety, altered moods and irrational behavior - a claim that any number of bartenders, police officers and rush-hour commuters could substantiate.


Anna Krivelyova
Now, a Boston College graduate student says investors and stock traders should pay attention to sunstorms, too.

Anna Krivelyova, a doctoral candidate in economics, recently co-authored a study that suggests an increase in geomagnetic activity - especially the upsurge that has taken place this fall - may lead to a drop in stock returns.

She is closely watching the world investment market in the wake of the late October solar eruptions, the result of the largest geomagnetic storms recorded in recent years.
"You probably should not be buying or selling stocks after every storm," she cautioned. "But if you are going to buy or sell anyway, you might want to check out what is happening up there."

Krivelyova and her husband, Cesare Robotti, who earned his doctorate in economics from BC last year, published the study "Playing the Field: Geomagnetic Storms and International Stock Markets" as part of an on-going series of economics papers by the Federal Reserve Bank of Atlanta.

The wife-and-husband team compiled data on every known geomagnetic storm - commonly called "sunstorms" - for the past 70 years. Each storm emits a plasma "bubble" of energy which hurtles into space at an estimated 2 million miles per hour and, in some cases, may collide with the earth's atmosphere.

Krivelyova and Robotti analyzed financial returns on the world-wide investment market in the immediate period following major sunstorm hits on the planet, and found a corresponding statistical dip in stock returns.

"On average, when analyzing the daily data, we find that in days following the geomagnetic storms, there are lower returns on the international market," Krivelyova said. "The differences are actually quite substantial."

Nor are they a coincidence, she adds. "Psychological disorders and 'bad moods' have been linked to more cautious behavior, including decisions of a financial nature."

Sunstorm-related stock drops are most likely to be felt by individual investors rather than large corporate traders, according to Krivelyova. "Institutional investors will be following some kind of formula most of the time," she said. "It is the individual investors who are more likely to be affected by this kind of behavior or mood variable."

Krivelyova said traders and brokers are keenly interested in her findings, as there is little data currently available on the subject

Her advice to individual investors? "If you start trading before every storm, the transaction costs will probably kill you. Every time that you rebalance your portfolio, you are going to have to pay some kind of percentage or fee. If you have modest transaction costs, yes, you can get a gain, although it too will probably be modest."

-Reid Oslin

 

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