Podcasts by Bangor Business School

As part of World Cancer Day, Bangor Business School’s Penny for your Thoughts podcast series explores the risky consumption of well-known carcinogens, including smoking and vaping. Through a better understanding of consumer risky behaviours and the role that social marketing plays in communicating such risks to consumers. Bangor Business School’s Dr Sara Parry, Senior Lecturer in Marketing discusses her research and how academics are contributing to reducing the global impact of cancer.

Dr Sara Parry is a Senior Lecturer in Marketing at Bangor Business School. Her research work has been published in many internationally recognised journals such as Journal of Business Research, Journal of Consumer Behaviour and British Journal of Management. Sara is the Chair of Athena Swan and the Equality and Diversity Representative for the School. She is also Head of Year 2 for all Bangor Business School undergraduates.

Dr Rhys ap Gwilym is a Senior Lecturer in Economics at Bangor Business School and has been involved with a research project that has advised the Wales Assembly Government’s consultation into Wales’ Tourism Tax plans. We all know that tax can be complex and multi-layered! So how does a researcher go about unpacking a such complex issue? Let’s hear about Rhys’ research process, what he did and what he learned along the way to make understanding tourism tax less taxing! Rhys has a strong interest in regional development policy and its role in Wales in particular. He has been a principal investigator on two grant-funded research projects for the Welsh Government relating to land value tax and tourism taxes. He is a member of the Institute of Welsh Affairs’ Economic Policy Group, where he has been involved in the development of discussion papers on the Welsh economy. He recently contributed to the “expert roundtable on the Welsh tax base & implications for public policy”.

In our very first Penny for Your Thoughts podcast Dr Steffan Thomas interviews Dr Heather He, Lecturer in Data Science/ Data Analytics at Bangor Business School. Dr Heather will be bringing some festive cheer, and rational thinking into what is known as ‘The Santa Claus Rally’. What is this phenomenon and how do we understand it through Behavioural Finance? Dr He has extensive research experience of individual trading behaviour and performance analysis in equity, forex exchange and cryptocurrency markets, as well as expertise in behavioural risk-taking and decision-making - prospect theory, individual behavioural biases, and decision theories.

Penny for your Thoughts: Dr Heather He: 16/12/2022 - Transcript 

[This podcast builds on the spirit and the values of those 19th century hardworking Welsh quarry workers and farmers, whose one penny contributions were critical to the foundation of Bangor University in 1884. They saw the value in making academic knowledge and research accessible to their community. And so do we at Bangor Business School. This podcast series brings together our cutting-edge knowledge, new theories and our experts’ opinions and insights on important business matters, to share with you, our podcast community]

[Christmas is a joyous time for celebrating with family and friends. Think of Christmas, and presents, elves and good old St. Nick comes to mind. But did you know that in the world of behavioural finance, there is such a phenomenon known as the Santa Claus Rally. So, what is this? Join our guest presenter Dr. Steffan Thomas, who sets out to learn all about the Santa Claus Rally from Bangor Business School data analytics lecturer, Dr. Heather He]

[Steffan] So I'm very pleased to be joined here by Dr. Heather He, who's going to talk to us about this notion of the Santa Claus Rally, an event that happens in the financial markets in the lead up to the last few days of the year. So welcome Heather.

[Heather] I'm Heather, lecture in data science and analytics at Bangor Business School. I teach data science and coding for business applications at Bangor business school. And I also teach behavioural finance topics at both undergraduate and post graduate levels. So behavioural finance is always something that I am very keen to understand more. And this Santa Claus Rally phenomenon is something related to people's behaviour or bias, the emotions that can be observed in the financial markets around the end of the year. And my research interest mainly lies in the two areas I just mentioned. The first is the data analytics in finance and business, and the second is the retail trading the behavioural risk taking and decision making in the financial markets.

[Steffan] Great. So this, this Santa Claus Rally then, at what point did that start, this trend start to emerge.. is this a comparatively new trend in the financial markets? What exactly is meant by the Santa Claus Rally?

[Heather] Oh, it's not very new actually, it's a well observed phenomenon, it can be dated back to 1970s if my memory is correct. So, back then when this phenomenon was just detected it was a very strong and significant effect basically; researchers, practitioners, they find that there was a sustained increase in stock market and in relevant financial market in the price around the end of the day, some says it may be the last five days of the year and the next two days of the new year and some says it's in the week leading up to the 25th of December the Christmas Day, but which ever - but generally, we can see that December this month tends to bring with it the good vibes the price gains. So, if we look back in from 1950 ‘till now, so, in this over 70 years, if we calculate the average returns of each month, December has never been the worst month of the year and in many cases it has the highest average return among all months. So, I will say generally speaking, we can see December as a good month for investors- a gift brought about by the Santa Claus.

[Steffan] Okay, so other than we have some good Christmas spirits and perhaps fuelled up by eating mince pies. What else causes the Santa Claus Rally? What is it that leads to this phenomenon? Other than people are happy there must be there must be something else that's triggering this.

[Heather] Yeah, I would say happiness is actually a very key factor. While traditional or more classic economics they tend to assume that people are very smart, they are rational they always try to maximise their profits, but in actual or from the perspective of behavioural economics way people tend to alter or tend to be impacted by emotions. So, happiness, is one of the most emotions that may drive people to take more risks. So, to purchase stocks, thus pushing up the prices in the stock market. So that's one reason. And the second possible reason is people tend to invest some end of year bonus to the stock market, they have some extra cash at hand. So, they want to put this cash somewhere. So, stock market might be one place for them to go. And the third possible reason is related to the so-called institutional investors and retail traders. So, some believe that during December institutional investors, they may do their end of year position adjustment, and sell the positions and just leave the market. So that means the market is dominated by the retail traders who are believed to be maybe less sophisticated, or more subjective to be affected by emotions and more positive to the financial market. So that may also push the overall market to go up a little bit. So that's the leading reasons - possible reasons behind this phenomenon.

[Penny for your Thoughts - brought to you by Bangor Business School]

[Steffan] So, I guess maybe our listeners are listening now thinking okay, so the end of the year is coming. It's been quite a challenging year in terms of the economic prospects elsewhere. And maybe people are thinking, maybe this is a good time for me to start investing in the markets? Can you make money exploiting this Santa Claus Rally? Is this - is this something for anybody can come in on?

[Heather] I wish I could say yes, I wish I could use the Santa Claus Rally and to put my money into the market and get some money back. But I'm sorry to say that the actual answer is unlikely. So many advocates of technical analysis, they tend to exploit these historical patterns in the stock market or in other relevant financial markets - in the crypto market. And many such historical patterns are brought about by the calendar effects such as the Santa Clause Rally, basically some patterns related to the calendar. But even though we can observe many empirical evidence, for example, December is the month with the highest average returns, although we can observe this evidence. Statistically, it's hard to actually make some money out of this phenomenon. One of the most important reason is we cannot tell when this phenomenon when these patterns will be actually translated into the market outcome, it will be very hard to identify the perfect time to enter the market, to buy the asset with the lowest price and to sell the assets at the highest price. So, if we take say, the transaction cost, the bid ask spread into consideration. So, on average, it's using the Santa Claus Rally to support your trading strategy is not likely to be profitable.

[Steffan] So, I guess, to reframe in layman's terms, there's a there's a bubble effect. The stock gains, there's a growth in the overall market. But that becomes something of a bell curve, it rises and falls, it's a bit of a phenomenon that happens at the end of the year. And unless you can identify a good point of entry, and a good point to exit, it's quite volatile, I suppose is what you're saying, is that right?

[Heather] Because, say for example, maybe last year, the highest price appeared at the beginning of the month, but maybe this year, the highest price may appear at the end of the month. So, it's hard to predict when exactly would be the highest and lowest entry and exit points.

[Steffan] So, you spoke with this start you identified this. Some say it's in the lead up to the 25th of December, Christmas Day. Some people say it's the last few days of trading, and others are saying the first few days of the New Year. So I guess actually, there isn't.. it's not like somebody says the third week of December, we're all going to come in together and cause this run on the market. It's - it's not as fixed on others, there's more variation. So, it's hard to predict. So, in that regard, you know, as a trend, and is that is that evidence against this Santa Claus Rally? You know, that is, is this phenomenon that because of the Christmas season, we are trying to attach his name and maybe there are other periods in the year where we see similar fluctuations, but perhaps we're not looking to tie it metaphorically to something.

[Heather] Yeah, despite the evidence I just talked about the average returns of December, some actually argues that Santa Claus Rally is just like Santa himself. Everyone talks about it, but no one can prove it with solid reasons. So, for example, if we look back for 20 years in the US market, and we look at the Standard and Poor 500, which measures the average performance of the five largest companies in US market, and if we calculate the average return of this S&P Market Index, in the week, up leading to the Christmas Day, we will find… that I got some data here…

So out of these 20 weeks, they observed they've got I think about 13 weeks with a positive return and five with an active return and two weeks with no change. So if we calculate the ratio, it's not a very significant Santa Claus Rally. And I also checked the FTSE 100 measures the measuring the average performance of the largest 100 companies in UK, and similar evidence are there. So out of the 20 weeks, 10 positive returns six negative returns and remaining with relatively no change.

So, I will say there is minimal evidence with the discernible Santa Claus Rally. So, I think it's fair to say that when this phenomenon was first detected back in 1970, it was strong, it was significant. But as time goes by with more and more investors are educated about this phenomenon, they tend to exploit this effect. They tend to make money out of this effect with their knowledge, and that somehow nullify this effect. And nowadays, it's relatively not that discernible.

[Steffan] Is there any evidence in the market to suggest that there's someone who initiates this Santa Claus Effect that there's a there's an identifiable trigger, is there any pattern and who, who leads on, on establishing this this growth in the market?

[Heather] I will say back then, when this effect was first detected, it's not very likely to be negotiated. It may be some negotiation, some insider traders among the large institutional investors, because they know each other, it's a small circle, but for the remaining say, retail investors or medium to small investors, they don't have such a community or a tool to communicate with each other.

But nowadays, I will say there is such possibility, if you still remember back to 2021, the end of 2020 and the beginning of 2021, there was something called the GameStop Saga, or the Meme Stock Saga. So that was when people at the end of year they have some maybe extra money at hand, they have this app, lifted emotions inspired by this seasonal things; the festival will see emotions and they tend to get together they communicate with each other, the Reddit; so the online platform and they kind of rush together into the market and push these stocks such as they can stop at AMC the price of those stocks. So, I wouldn't say that it is entirely related to what we are talking about today with Santa Claus Rally, but it's something related to the end of year spirit.

[Steffan] And I wonder, are there any similar phenomenon in the financial markets, January Effect? Do we do we see any other patterns that are of a similar nature and any other given time in the year that you can observe?

[Heather] Yes, behavioural finance or behavioural economics have identified a series of market anomalies related to the calendar or we call them Calendar Effects. One that is particularly related to Santa Claus Rally is something called the January effect.

The reasons we believe that are behind this are underlying this effect is very similar to the Santa Claus Rally. People have this uplifted emotion people have extra money at hand. And also similar to the Santa Claus Rally, when it was first found back in 1950, it was evident but nowadays, the possibility of observing this January effect of observing this sustained increase is at the beginning of the year, the possibility of observing it is barely better than the flip of a coin.

So that's one calendar effect related to this Santa Claus Rally. And another thing that I'm particularly fond of is something called “Sell in May and go away, come back on Saint Ledgers Day”. So, it's like a poem from my perspective.

So, it basically describes that back then, when mobile devices and the mobile internet are not that popular, institutional investors were fairly large traders in the market, they want to enjoy their summer by taking the horse racing. So, they may just sell whatever assets they have the predictions out around the around the end of May, and they go out and enjoy the summer - leave the markets, to the irrational less sophisticated retail investors. So, the general idea is in months between May to September can be a very risky period. So that's two calendar effects I can think of

[Steffan] That's really interesting. I guess there's a historical legacy there. And does that still hold in the market? Are those patterns still there? You know, despite the fact that we now have mobile devices, we now have internet apps available to us that we can continue trading, even if we're at our leisure elsewhere, but have those are those market trends or Calendar Effects stayed in the market are those patterns still there, despite the fact that technology has enabled us to, to continue trading as we want throughout the calendar year.

[Heather] I think there - there are some. So basically, the old Calendar Effects, they may gradually evolve, or they may gradually be eliminated, but because of the fact that more and more people are know about that, because of the changes brought about by the financial technologies or the new technologies. For example, the evidence nowadays to support the effect we talked about these - Santa Claus Rally, the January Effect, the “Go away in May and come back in September”, these things are not that strong, but there should be some new evidence arising. So just like the stories I told, people nowadays, they tend to get together during say the holidays during the common holidays, and they can communicate, and they have more time to spend on the market. So, retail traders, they may get together and trading the market. So, I believe there will be some new evidences related to the calendars, nowadays.

[Penny for your Thoughts brought to you by Bangor Business School]

[Steffan] So, Heather we've heard a lot above these trends, not just related to the Santa Claus rolling, but these highs and lows that happened with market effect throughout the year. I wonder if you've got any advice for our listeners who may be listening, now thinking there's clearly an opportunity here, how could I exploit the Santa Claus Rally or the Calendar Effect?

[Heather] Well, my advice were to do not try to explore these Calendar Effects, do not try to put your money or your money into the market during December just because you have just heard about this Santa Claus Rally, it can be really, really risky. As I just mentioned, although we can expect that there will be an increase in the financial market, it's likely to be to be that this year as well. But it's very hard to timing the perfect time to.. it's really hard to timing the market to find the lowest price to buy and the highest price to sell.

So, it's very flat rate and very risky. So, a better strategy was to buy and hold the asset and to hold it for a long enough time. And also to… to investigate to put your attention into those that we are more likely to have control of. For example, the fundamentals of the company to learn more about the industries that you're really interested in and to pay attention to the macroeconomics. So that's the information that can really help us to develop our healthy well diversified portfolio and to actually make some money - hopefully out of it.

[Steffan] That sounds like some very sound advice. Let's not all rush away from this podcast and spend our Christmas bonuses spend our Christmas money on buying into the market in the hope of buying cheap and selling high.

You've spoken about this need to analyse markets need to understand the economics of what's happening to study industries and see where people might want to make better informed investments. Against the flip of that then, can we close on maybe some reflection, why behavioural economics is still such an important phenomenon to understand cause you spoke in the beginning and about how happiness has a - has an impact on the way people trade so, so what is the importance of not just analysing the industry and the data but understanding the humans behind those trades?

[Heather] Yes, so to answer this question, the first thing I want to do is to quote a very interesting, a few sentences from Richard Taylor, the Nobel Memorial Prize in Economic Sciences. He says that “Humans are the people we interact with every day. Econs are these strange creatures only found in economics textbooks that are unemotional, really smart, and they never have self-control problems”.

So, if we want to design policies that will work we want to design say, campaign strategies that will work we want to understand what actual humans in the market are behaving, we need to analyse those questions from the perspective of behavioural finance, to think about what if, say, people, they behave differently in different situations, what if they are affected by their emotions? And what if they are influenced by the environments and how they actually interact with each other, and to, which may affect the outcomes at the market level. So that's the importance of behavioural finance, from my perspective.

[Steffan] Fantastic. Thank you so much for your time today. I think we've - we've gained such an insight into this this world of economics, this world of market trading, where it has variants and such fluctuation throughout the year you mentioned various calendar points that impact on this - but this this phenomenon, the Santa Claus Rally, I think for our for our Christmas podcast, has been really, really interesting to dig into this bit of magic that happens unpredictably somewhere between the beginning of December and the end of the month. And it appears I think he said like Father Christmas. We just know it's going to happen at some point. And we just have to believe in that magic.

I'd like to end by wishing all our listeners a very Happy and Prosperous Christmas, and the very best for 2023 Thank you for your time again, Heather.

Thanks for listening to penny for your thoughts brought to you by Bangor Business School. Subscribe through your usual podcast channel and don't forget to like and share.