The 'Friday the 13th effect': superstitions in behavioural finance

In the world of finance, where data-driven decisions and rational analysis are the norms, it might seem surprising to find that superstitions can influence market movements. One of the most intriguing examples of this is the ‘Friday the 13th effect’, a phenomenon that highlights how human psychology can shape market behaviour in ways that defy traditional financial theories.

The origins of the Friday the 13th superstition

Friday the 13th has long been considered an unlucky day in Western culture, though its precise origins remain somewhat unclear. The superstition is thought to arise from a combination of two distinct fears: the fear of the number 13, known as triskaidekaphobia, and the fear of Fridays, both of which have been historically associated with bad luck and misfortune. In Christianity, for instance, Jesus was crucified on a Friday, and the Last Supper had 13 attendees, including Judas, the betrayer. 

With historical and religious associations contributing to the negative connotations surrounding both the day and the number, Friday the 13th continues to be viewed as a particularly ominous date and remains one of caution and unease in the collective imagination. 

Behavioural finance and the ‘Friday the 13th effect’ in financial markets

Behavioural finance examines how psychological influences and biases impact the financial behaviours of investors and financial practitioners. Unlike traditional finance, which assumes that all market participants act rationally, behavioural finance recognises that emotions, cognitive errors and even superstitions can affect financial decision-making.

Studies investigating the impact of Friday the 13th on stock market returns have revealed various insights, and there is evidence to suggest that markets can be affected by superstitions connected to the day. One notable study by Donald B. Keim and Robert F. Stambaugh in 1984,¹ for example, found that stock returns on Friday the 13th were significantly lower than on other Fridays, hypothesising that investor behaviour on this particular day deviates from the rational expectations of the efficient market hypothesis – the investment theory stating that asset prices reflect available information.

Conversely, a more recent analysis by Bespoke Investment Group revealed the opposite.² This study identified intriguing patterns in the performance of the S&P 500 index, which indicated that on Fridays that fall on the 13th, the average gains for the S&P 500 are four times higher than the historical average daily movement.

While neither study is conclusive, they underscore the intricate mechanics of financial markets and the influence that human behaviour and psychology can have on price movements. Psychological factors, such as risk aversion and herd behaviour, may explain why the superstition associated with Friday the 13th has the capacity to affect markets. The fear of potential losses on an unlucky day, for example, may lead to more cautious trading or the selling of riskier assets, prompting others to follow suit. Media coverage may also shape investor sentiment, as sensational headlines about the day's supposed unluckiness amplify superstition and reinforce more cautious trading behaviour. Often these biases or influences are subconscious, rather than deliberate investment choices. 

Implications for investors

Understanding behavioural finance is crucial for both individual investors and financial professionals. Here are a few key takeaways:

1. Awareness: Being aware of how human sentiment like superstition can influence market behaviour can help investors recognise and mitigate their own biases. By acknowledging that certain beliefs can affect decision-making, investors can strive to make better informed choices.
2. Avoid market timing: Predicting short-term market movements is inherently challenging and often results in reactive decisions. Instead, adopting a long-term investment perspective and remaining invested throughout market fluctuations helps investors stay aligned with their objectives.
3. Importance of emotional regulation: Emotional responses to market fluctuations can lead to impulsive decisions that can ultimately undermine investment goals. Employing strategies such as setting long-term objectives, maintaining a diversified portfolio and avoiding the temptation to react to short-term market movements, is essential for helping investors remain disciplined through periods of volatility.

Conclusion

The ‘Friday the 13th effect’ serves as a fascinating example of how superstitions can infiltrate even the most rational and data-driven environments. While traditional finance theories emphasise rational decision-making, behavioural finance reminds us that human psychology, with all its quirks and biases, still plays a role in financial markets. By understanding and acknowledging these influences, investors can better navigate the complexities of the market and make more informed decisions regarding their investment habits.

So, the next time Friday the 13th comes around, remember that while it might be just another day on the calendar, its potential to influence markets is a useful reminder of the human element in finance – and the importance of staying focused on long-term goals rather than short-term noise.

[1] Keim & Stambaugh, 1984; A Further Investigation of the Weekend Effect in Stock Returns - KEIM - 1984 - The Journal of Finance - Wiley Online Library

[2] Bespoke Investment Group, 2023: Bespoke | My Research

References:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3424267

https://edition.cnn.com/style/article/why-friday-13-unlucky-explained/index.html

https://www.researchgate.net/publication/228258854_Friday_the_Thirteenth_and_the_Stock_Market

https://www.mdpi.com/2227-9091/11/4/72

https://beiinghuman.com/behavioral-finance-exploring-the-intersection-of-psychology-and-finance/