The Relationship Between Lunar Cycle and Stock Returns in Companies Listed at Nairobi Securities Exchange

Abstract

The belief that lunar cycle affects people‟s mood and behaviour stems from ancient lore. Various psychological studies and behavioural finance literature provides evidence on the effect of mood on asset prices. Despite the effects of lunar cycle on people‟s moods attracting research by international researchers, there has been no known study that focuses on the effect of lunar cycle on stock returns in the Nairobi Securities Exchange. The objective of this study is to investigate the relationship between lunar cycle and stock returns in companies listed at Nairobi Securities Exchange. This study adopted descriptive research design using event study model and a sample of NSE 20-Share Index to meet the objective of the study. Secondary data collected from NSE reports between 2010 and 2014 was used and analysis done using event study model and SPSS descriptive statistics and statistical correlation, and the significance of the findings tested using the t statistic at 95% significance level. This study found that that stock returns increased during the New Moon and Full Moon phases of compared to the normal trading days of the lunar cycle. Further analysis found that cumulative stock returns were higher during the New Moon dates. The p–value of -2.72 and -2.404 recorded during New Moon and Full Moon phases respectively significantly deviates from the t-critical value of 1.943 under the degree of freedom of 6 tested at 95% significance level, showing that there is a significant difference in the mean value of stock returns during New Moon/Full Moon phases compared to the mean return during normal trading days. This study recommends that CMA and NSE to develop a policy that will limit the minimum and maximum price levels during FM and NM phases to protect the prices from manipulations and to protect the interest of the investors during the different phases of lunar cycle.