Mercury retrograde – again

Sarcasm alert! Like you need a reminder about Friday’s posts…

I have previously written about the pervasive influence planet Mercury has on our stock markets. In short, there was a study that found that during the weeks when Mercury is in retrograde, people not only experience all kinds of misfortune including brain fog, but stock markets also drop and then recover, once Mercury is moving forward on the night sky again. Back then I was quite dismissive about astrology having an impact on stock markets, but clearly, I am just too much of a snob.

Two students from Tsinghua University dug deeper into the effect of Mercury retrograde on Chinese stock markets. They make two pivotal contributions to academic literature (their words, not mine). They “enrich the field of behavioural finance by examining the impact of superstitions on the stock market” and provide findings “complementary to the body of work on how mood affects the stock market” (again, their words, not mine).

They find that in a country full of superstitious investors like China, the Mercury retrograde effect is much stronger than previously documented. In my previous article, I mentioned that stock markets drop by 3.3% annualised or 0.1% to 0.2% in the weeks of Mercury retrograde.

This new study found that Chinese stock markets dropped by an average of 1.5% during the weeks of Mercury retrograde. Meanwhile, in the time Mercury is not in retrograde, Chinese markets rise by about 2% creating a huge potential for an active trading strategy that outperforms the market. The performance difference between Mercury retrograde and the rest of the time becomes even more pronounced when one switches one week after retrograde ends, which doesn’t demonstrate at all that this effect is essentially random but shows that there is such a thing as Mercury retroshade where the negative influence of Mercury extends past the simple movements of the planet on the sky.

Indeed, they analyse individual stocks and find that stocks that have exceptionally high turnover during Mercury retrograde also tend to drop more and then recover more after Mercury retrograde ends. By going short stocks with higher turnover during Mercury retrograde in the weeks before Mercury retrograde starts and these stocks show this higher turnover and then going long after Mercury retrograde ends, one can create “a superstition hedge portfolio that can generate an annualised return of 8.7%” (again, their words).

If you ask me, this research is a hot contender for a prize in finance and economics. Maybe not quite a Nobel, but I am sure we can find some other award.

Performance of Chinese stock indices during and between Mercury retrograde

Source: Kou and Ma (2024)