Cultural New Year Holidays and Stock Returns around the World

By Bergsma, Kelley; Jiang, Danling | Financial Management, Spring 2016 | Go to article overview

Cultural New Year Holidays and Stock Returns around the World


Bergsma, Kelley, Jiang, Danling, Financial Management


Using data from 11 major international markets that celebrate six cultural New Year holidays that do not occur on January 1, we find that stock markets tend to outperform in days surrounding a cultural New Year. After controlling for firm characteristics, an average stock earns 2.5% higher abnormal returns across all markets in the month of a cultural New Year relative to other months of the year. Further evidence suggests that positive holiday moods, in conjunction with cash infusions prior to a cultural New Year, produce elevated stock prices, particularly among those stocks most preferred and traded by individual investors.

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Despite cultural differences that set people apart, there exist certain universal themes that bring people together. One such theme is a common sense of optimism at the beginning of a new year. People throughout history have celebrated the hope of a happier tomorrow at the advent of a new year. For the Western world, the New Year falls on January 1, the beginning of the Gregorian calendar year; however, other cultures celebrate different New Years according to their traditional calendars. For example, China's New Year (Spring Festival) falls in January or February, Thailand's New Year (Songkran) falls in mid April, and Israel's New Year (Rosh Hashanah) falls in September or October. While these cultural New Year holidays are celebrated with different traditions and at different times of the year, these New Year celebrations all share a common uplifting mood and, in many cases, individuals enjoy cash infusions, in the form of employee bonuses, prior to the cultural year-end.

We examine how this shared optimistic mood around cultural New Year holidays impacts stock markets worldwide and how cash infusions and the dominance of individual investors facilitate this process. Specifically, we study equity performance in 11 major international stock markets from 1991 to 2011 surrounding six cultural New Year holidays (e.g., Chinese, Islamic, Jewish, Korean, Sinhalese, and Thai New Year holidays) and find that stock markets tend to outperform surrounding the cultural New Year. We further demonstrate that this cultural New Year effect is most pronounced among stocks with characteristics favored by individual investors, such as low price, high idiosyncratic volatility, and high past extreme daily returns. This individual investor clientele effect is stronger among countries where employees receive bonuses at the turn of the cultural New Year.

Our contribution to the literature is to demonstrate how a transcendent theme across cultures at different times of the year is associated with a similar pricing effect across international equity markets. In contrast, prior work on culture and finance has primarily focused on how cultural differences lead to different effects in international financial markets. For example, differences in religion explain variations in creditor rights across nations (Stulz and Williamson, 2003). In addition, cultural differences can lead to differing impacts of social interaction on individual trading decisions (Ng and Wu, 2010). Further, different levels of individualism among cultures affect herding behavior, trading volume, volatility, momentum, and corporate risk-taking (Beckmann, Menkhoff, and Suto, 2008; Chui, Titman, and Wei, 2010; Li et al., 2013). In contrast, we posit that a similar optimistic mood around cultural New Year holidays will result in a similar positive effect on stock prices across different cultures.

Our study is related to the prior investor mood literature that primarily focuses on mood changes prompted by exogenous shocks (e.g., sunshine, sports teams' performance, or aviation disasters) and finds that these mood changes influence aggregate stock market performance (Saunders, 1993; Hirshleifer and Shumway, 2003; Edmans, Garcia, and Norli, 2007; Kaplanski and Levy, 2010). Yet, these proxies for mood state are not known ex ante, making it difficult to exploit the direct effect of mood on security prices. …

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