Stock markets have a long history of being abnormally risky in September and October. Out of 10 months in which the S&P500 ended at least 15% lower than when it started, 3 were in October. Out of 31 months in which it ended at least 10% lower, 12 were in September or October.<\/p>\n
I used to guess that this was due to the onset of seasonal affective disorder. That explanation was a bit unsatisfying, because SAD seems likely to be predictable enough that the effects could be mostly smoothed out by smart investors.<\/p>\n
After looking at the 1957 pandemic<\/a> and its possible effect on the stock market, I wondered whether infectious diseases was a better explanation.<\/p>\n I did a crude analysis of the correlations between flu deaths and stock market changes. I didn’t manage to get as good a dataset as I’d hoped for, and ended up settling for the monthly US data for selected seasons (12 in the period 1941-1976) in table 1 of Trends in Recorded Influenza Mortality: United States, 1900\u20132004<\/a>.<\/p>\n I looked at correlations between monthly increases in flu deaths per 100,000 people and the monthly change in the S&P500. I was able to find a large effect, but it disappeared when I left out the 1943-1944 season (which was by far the worst season in that time period, yet wasn’t labeled as a pandemic).<\/p>\n Either there’s no effect in that time period, I don’t have detailed enough data, or the effects precede deaths by enough that the death data aren’t helpful.<\/p>\n I was mostly thinking that diseases might have affected the market via effects on investors moods or liquidity preferences, so I wasn’t assuming there would be much discussion of the topic. The paper The Unprecedented Stock Market Reaction to COVID-19<\/a> investigated whether newspapers mentioned the topic, and concluded:<\/p>\n \nIn the period before 24 February 2020 – spanning 120 years and more than 1,100 jumps – contemporary journalistic accounts attributed not a single daily stock market jump to infectious disease outbreaks or policy responses to such outbreaks. Perhaps surprisingly, even the Spanish Flu fails to register in next-day journalistic explanations for large daily stock market moves.<\/p><\/blockquote>\n So, after a fair amount of research, I still don’t have good evidence about what’s causing the September \/ October volatility.<\/p>\n P.S. For some strange reason, January is an unusually safe month, with no declines of more than 9% in the S&P 500.<\/p>\n