Opinion: Even stock traders get the back-to-school blues — and we all feel it — Lily Fang

MIT Sloan Visiting Associate Professor of Finance Lily Fang

MIT Sloan Visiting Associate Professor of Finance Lily Fang

From MarketWatch

It’s widely known on Wall Street that September is the worst month for stocks. This is not just trader superstition. An article published in the Wall Street Journal last year points out that since 1896, the Dow Jones Industrial Average has lost 1.09% in September on average, while returns for every other month average 0.75%. Moreover, September is the only month that shows average declines over the past 20, 50, and 100 years.

While the September swoon is no secret, its precise cause is elusive. Possible explanations for the lower returns range from the complex — one study theorizes that portfolio managers sell stocks with recent losses in September to take advantage of tax breaks before the end of their tax year in October; to the dubious — some strategists claim it’s pure randomness; to the downright bizarre — a study by University of Kansas suggests that the decline in the amount of daylight in New York City in September might spark seasonal affective disorder and make some traders more risk-averse.

Importantly, this lower return was not driven by September alone, even though the September effect is pervasive in the northern hemisphere. Even when September is excluded, there is still a return gap of at least 0.5% between after-holiday months and other times, and the difference remains highly significant.

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Innovating with Bitcoin at MIT — Christian Catalini

MIT Sloan Professor Christian Catalini

MIT Sloan Professor Christian Catalini

From Xconomy

In November, we began distributing $100 in Bitcoin to every undergraduate student at MIT. A large share of the 4,500 eligible students participated in the project.

Bitcoin is an innovative payment network that allows for instant peer-to-peer transactions with zero or very low processing fees on a worldwide scale. The objective of the study is to observe the diffusion of Bitcoin, a software-based, open-source, peer-to-peer payment system on the MIT campus.

The initiative began in April 2014 when students Jeremy Rubin and Dan Elitzer organized the idea, raised the funds from donors, and launched the MIT Bitcoin Project. I started working with these students when it quickly became clear that the project had to become a full research study and had to meet the rigorous requirements of academic research at MIT.

Observing the ways students will innovate because of their newfound Bitcoin cash should be fascinating: MIT students are tech savvy, not set in their ways, generally a bit cash strapped anyway, and often open to new innovations. In the same way that MIT gave students early access to computing resources through the Athena project in 1983, this project intends to give participants early access to a digital currency.

Read the full post at Xconomy.

Christian Catalini is the Fred Kayne (1960) Career Development Professor of Entrepreneurship and Assistant Professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.

Opinion: How you can use earnings release dates to predict stock movements — Eric So

MIT Sloan Asst. Prof. Eric So

From MarketWatch

If you have good news, you want to rush to tell people about it. If you have bad news, you tend to stall, hoping it will go away or that some good news will come along to dilute it. Companies, it turns out, behave similarly — and therein lies an extraordinary opportunity that most investors have been missing.

I recently studied whether the announcements companies make when they reschedule earnings reports contain important information about the firms. This earnings season, for instance, investors may notice that Apple Inc.AAPL, -0.53%   moved forward its expected earnings announcement date to Oct. 20 from Oct. 28. Meanwhile, Coca-Cola Co. KO, -0.64%   has delayed its expected reporting date to Oct. 21 from Oct. 14.

What can investors predict from such behavior? Often, quite a lot.

When companies shift a scheduled reporting date, the announcement typically appears routine. Some financial reporting dates are set by regulation, but firms have discretion in scheduling earnings reports.

In this study, I analyzed the corporate reporting calendars of some 19,000 companies from 2006 through 2013. Wall Street Horizon, Inc., a firm that collects events information of publicly traded companies, provided the data.

I discovered that firms which moved up their reporting dates were considerably more likely to report higher earnings, while those that delayed their reporting dates tended to announce earnings declines. The stock values of the companies tracked closely with the earnings trends.

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Behind the hype over Aetna’s minimum wage boost — Barbara Dyer

MIT Sloan Senior Lecturer and Visiting Scientist Barbara Dyer

MIT Sloan Senior Lecturer and Visiting Scientist Barbara Dyer

From Fortune

Last week, Aetna, Inc., one of the largest healthcare insurers in America, made news when it announced it would boost its minimum wage base to $16 an hour for its lowest-earning employees. Aetna  AET 0.35%  also pledged to cover more of its employee’s health costs. In a Wall Street Journal interview, CEO Mark Bertolini said the company hopes to reduce its $120 million annual turnover costs and will monitor how this investment plays out.

While a firm’s decision to increase pay for lower-wage workers should certainly be applauded, it also begs the question: Why is the decision to pay workers $16 per hour breaking news?

My answer: because of the message it sends to investors and shareholders.

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Diversity and markets — Evan Apfelbaum

MIT Sloan Asst. Prof. Evan Apfelbaum

We usually think of ethnic diversity as a matter of social policy, not a factor that could impede market bubbles. But new research by me and a team of colleagues suggests a surprising new reason to consider diversity as a hedge against speculative bubbles: in two studies, we find that markets comprised of ethnically diverse traders are more accurate in pricing assets than ethnically homogeneous ones. Our paper, which came out Nov. 17 in Proceedings of the National Academy of Sciences (PNAS), finds that ethnic diversity leads all traders, whether of majority or minority ethnicity, to price more accurately and thwart bubbles. The reason isn’t because minority traders had special information or differential skills; rather, their mere presence changed how everyone approached decision-making.  Traders were more apt to carefully scrutinize others’ transactions and less likely to copy others’ errors in diverse markets, and this reduced the incidence of bubbles.

To conduct our research, we constructed experimental markets in the United States and Singapore in which participants traded stocks to earn real money. We randomly assigned participants to ethnically homogenous or diverse markets. We found that markets comprised of diverse traders did a 58 percent better job at pricing assets to their true value. Overpricing was higher in homogenous markets because traders are more likely to accept speculative prices, we found. Their pricing errors were more correlated than in diverse markets. And when bubbles burst, homogenous markets crashed more severely.

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