~~Question I liked~~

I was reading for my exams tonight, I came across this question which I liked!

According to a recent NY Times article, “Believe it or not, the stock market tends to do better or worse depending on where we are in the lunar cycle. That’s the conclusion of two studies that have circulated for a couple of years in academic circles but that, until an article in the November issue of the Harvard Business Review, received relatively little attention outside academia. … during the 15 days of the lunar month closest to the new moon — starting seven days before it and ending seven days after — the stock market’s average returns are much
higher than those of the other half of the month. [Researchers] cited extensive psychological and biological literature that has found that the lunar cycle can heavily influence our moods. A full moon, for example, increases our tendency to
feel depressed and pessimistic, so investors may be more inclined to stay out of 5
the stock market at or near that time.” Suppose you agree that the moon exerts
strong and mysterious impacts on human psychology. (Certainly, economic theory allows for this possibility.) Why would it be surprising to see stock prices behave in the way the article claims?


Edit: ( answer from my professor)
A hedge fund buy one week before the new moon and sell one week afterwards. This may explain why Professors Dichev and Janes find in “Lunar cycle effects in stock returns” that “In spite of the large difference in returns, the t-statistics for both return specifications are insignificant (0.96 and 1.16). The main reason for this lack of statistical significance is the large standard deviation of daily returns, about 1 percent, which swamps in magnitude the difference in returns.” Thus, at least as far as economics is concerned, people may feel gloomy around the full moon and suicide rates may rise – but we should not see an effect on stock returns, since profit-maximizing traders will undo any observable pattern.