October: Is It the Month of Market Crashes?
Traders cashing in at the New York Stock Exchange, October 1929
October has a special place in the world of finance and is one of the most feared months in the calendar. In this blog post, we'll examine whether there's any truth to this firmly held myth.
As compiled by Investopedia.com, here are the events that have given October such a bad name for more than 100 years.
The Panic of 1907 – October 1907
A financial panic threatened to engulf Bay Street and Wall Street, mostly owing to threats of legislative action south of the border against trusts and shrinking credit. There were multiple bank runs and heavy panic selling at the NYSE. All that stood between the U.S. and a serious crash was a J.P. Morgan led consortium that did the work of the U.S. Fed before it existed.
Markets declined 19 per cent.
Black Tuesday, Thursday and Monday – October 1929
The Crash of 1929 was bloodletting on an unprecedented scale. It left several "black" days in the history books, each with their own record-breaking slides.
Markets declined 22 per cent.
Black Monday – October 1987
Nothing says Monday like a financial meltdown. In 1987, automatic stop-loss orders and financial contagion gave markets a thorough throttling as a domino effect echoed across the world.
Markets declined 23 per cent.
Differentiating Fact from Fiction
In an article for BBC.com, it was noted that Lily Fang, a professor at the Massachusetts Institute of Technology, had turned her attention to why markets fare so poorly in the autumn.
She blames summer holidays for stock market bubbles bursting so frequently in North America as autumn descends onto the northern hemisphere.
“Instead, they delay their reaction until they go back to work in September. And often this is bad news which takes longer to digest than good news,” says her research.
Prof Fang and her colleagues have tested their thesis by looking at differences in school holiday dates in different locations around the globe and found that the autumn effect varies depending on which month most people go away.
In other words, she concludes, financial markets - so praised for their efficiency - get less efficient in the summer because people are not paying enough attention to what’s going on.
Although this explanation may not be rooted in hard scientific data, it’s interesting none the less.