Solar storms responsible for market crash?

Solar storms are set to peak soon which is said to affect brain equilibrium causing cognitive and emotional imbalances… and – as we can all see and feel - may be having disastrous effect on stock prices.

A 1994 paper Geomagnetic storms: Association with incidence of depression as measured by hospital admission says that their statistical analysis shows that during solar storms people are more prone to go nuts:

The hypothesis that geomagnetic storms may partly account for the seasonal variation in the incidence of depression, by acting as a precipitant of depressive illness in susceptible individuals, is supported by a statistically significant 36.2% increase in male hospital admissions with a diagnosis of depressed phase, manic-depressive illness in the second week following such storms compared with geomagnetically quiet control periods.

Having said this, a 2003 Atlanta Fed Working paper says that manic depression during solar storms causes people to “misattribute” moods and pessimism causing negative stock returns.

From Fed’s Playing the Field: Geomagnetic Storms and the Stock Market:

An important finding of this literature is that people often attribute their feelings and emotions to the wrong source, leading to incorrect judgments. Specifically, people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions. Misattribution of mood and pessimistic choices can translate into a relatively higher demand for riskless assets, causing the price of risky assets to fall or to rise less quickly than otherwise.

Hm? Let’s see… today, riskless treasuries rallied despite S&P credit downgrade while risky stocks got hammered. Also, people see double dip recession even though the most reliable economic indicator – the yield curve – is not signaling it.

Authors, Anna Krivelyova and Cesare Robotti , find that, during solar activity, the market sell-off is global and that small caps are affected more.

In addition to describing how solar activity affects humans, it also calculates the returns during the normal days (blue bars) and 6 days after the solar storm.

The graph clearly shows that during solar storms, market does not do well.

“The World and several international stock market indices also appear to be negatively affected by geomagnetic storms during their recovery phase. This effect is statistically and economically significant,” write the authors.

Perhaps the more spooky but unexplainable is the repetition of the “number of the beast” on the S&P index: S&P fell today by 6.66% while the 2008 low was 666 points on the index.

The Atlanta Fed paper is available here.