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Journal of Indian Institute of Management Bangalore

IIM Bangalore offers Degree-Granting Programmes, a Diploma Programme, Certificate Programmes and Executive Education Programmes and specialised courses in areas such as entrepreneurship and public policy.

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About IIMB

The Indian Institute of Management Bangalore (IIMB) believes in building leaders through holistic, transformative and innovative education

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NEW MOON DAY ANOMALIES OF AMAVASYA AND MUHURAT TRADING: GESTALTING THE ROLE OF CULTURE AND INSTITUTIONS

We study the socio-cultural ecosystems, along with cross-country investments and global flow of foreign capital in a local milieu, India, having multiple stock exchanges and listed firms. India is characterised by varied investor profiles and an observance of 'special days', given the diverse beliefs . This study tests the  abstinence hypothesis to examine the ‘new moon day’ effect considered inauspicious by the local dominant investing community, and the psychological phenomenon  of duality of minds,  based on India’s biggest yearly festival, Diwali, an auspicious day to make investments and commence any wealth-generating activity (Muhurat trading). We find that when the new moon day happens to be a Friday, the returns are significantly negative, supporting the belief-based abstinence hypothesis. We further show that the Muhurat trading day returns are significantly higher than those on other new moon days. 

Within the same socio-economic and geographical context, the results amplify in the stock exchange having poorer participation from institutional investors and higher retail investors’ participation: the Bombay Stock Exchange. Further, the results intensify in the stock market’s small-cap segment that witnesses higher participation of retail investors who display more religious and faith-based behaviour while investing. We formulate a trading strategy to exploit this phenomenon and find that the strategy generates higher returns than a simple buy and hold strategy. This study adds to the literature on capital market anomalies, with new evidence on India related to the new moon day which is not in line with the lunar calendar evidence in the literature. We contribute to the emerging literature that studies the interactions between culture and economic outcomes. We provide evidence that religious faith or belief-based abstinence can override trading compulsions, depending on the microstructure effects of the markets. Our work indicates that stock traders and global investment managers should be cognisant of such capital market anomalies while formulating trading strategies in the local milieu.