Mercury, Mood, and Mispricing : A Natural Experiment in the Chinese Stock Market

This paper examines the effects of superstitious psychology on investors’ decision making in the context of Mercury retrograde, a special astronomical phenomenon meaning “everything going wrong”. Using natural experiments in the Chinese stock market, we find that stock prices fall substantially by about 31% (annualized) during Mercury retrograde periods and reverse to almost the same extent after these periods. This mispricing effect is robust after considering seasonality, the January effect, and well-known firm-level characteristics. Our mechanism tests are consistent with model-implied conjectures that stocks covered by higher investor attention are more influenced by superstitious psychology in the extensive and intensive channels. A superstitious hedge strategy is motivated by our findings and can generate a 10.7% marketadjusted return annually