Jeffrey R. Gerlach

Yes, Wall Street, There Is A January Effect! Evidence from Laboratory Auctions

There is a large literature using financial market data on the causes of a “January effect,” which produces higher stock prices in January than in other months of the year. We present the first experimental study of this phenomenon in the context of two well-known auction experiments. After controlling for variables that could influence subject bids, such as differences in private values, cumulative earnings, and learning effects, the prices in the January markets were systematically higher than those in December, a difference that is economically large and statistically significant. The results provide support for the conjecture that psychological factors may contribute to the well-documented January effect in empirical stock market data.

International sports and investor sentiment: do national team matches really affect stock market returns?

Ashton et al. (2003), Edmans et al. (2007) and Kaplanski and Levy (2010) document abnormal stock market returns on the trading day following international sporting events, particularly soccer. This study examines returns in matching countries and finds that unusual returns also exist in those countries even though their national teams did not play. The evidence shows that national team matches do not affect neutral markets like the matching countries, which implies that sports do not cause unusual returns in either domestic or foreign markets. The results indicate that changes in investor sentiment following international sports matches do not have a significant effect on asset prices.

State-Dependent Stock Market Reactions to Monetary Policy: 'Bubble' vs. Fundamental States

This paper presents a test of the response of stock prices to Federal Reserve policy shocks using a Markov-switching framework. The framework endogenously identifies two distinct regimes. The first is a state where the S&P 500 index exhibits a significantly negative response to unexpected changes in the target federal funds rate in the thirty-minute window bracketing FOMC announcements, a result consistent with previous work. However, the model identifies a second regime from September 1998 to September 2002, in which the response of stock prices to policy shocks is insignificant and over ten times more volatile relative to the other regime.