Pop goes the market
The strange connection between Billboard hits and stock prices
Wondering when it will be safe to open your 401(k) statement again? Maybe you should check the pop charts.
That's the theory of Philip Maymin, assistant professor of finance and risk engineering at the Polytechnic Institute of New York University. Maymin looked at more than 5,000 hit songs from a half-century of Billboard charts, measured them against the stock market, and found that the beat of popular music has an eerie connection to the performance of the Standard & Poor's 500 Index.
When Wall Street is jumpy, he discovered, we prefer music with a consistent tempo. Two current examples: Kanye West's "Heartless" and Beyonce's "Single Ladies (Put A Ring On It)." Both feature steady-as-they-go beats and broke into the Top 10 at a time of unprecedented market turmoil.
Conversely, in a calm market, music charts are populated by songs with more unpredictable beats - tempos that slow down or gain speed, or even veer from the 4/4 rhythm that typifies most pop music. Maymin calls that "high beat-variance" and cites Sean Paul's "Like Glue" as an example because of its jittery, reggae-influenced rhythms. Paul's song rode the charts in 2003, at the front end of a relatively tranquil period in financial markets. During those years, Maymin says, the stock average moved up or down an average of half a percent per day. Last year's average daily fluctuation rate, by contrast, was 2 percent. He published his findings on the Social Science Research Network website, www.ssrn.com.
Maymin also found something else intriguing - beat variance preferences don't just reflect changes in the market's volatility, they seem to anticipate them. "It is not that it predicts it directly, it just seems to predate it, both in statistical tests and even in profit," he says. "In my paper, I show that with a few simplifying assumptions, you could have made money over the past five decades trading volatility based on musical preferences - if you could have traded volatility."
Maymin isn't the first to connect stock market behavior to trends outside the realm of economics. There's the Steelers effect, for instance: Every time Pittsburgh has won the Super Bowl, the S&P 500 average finished the year up more than 25 percent, versus an average return closer to 9 percent. (This year's Steelers win may buck the trend, though: The financial markets have already tumbled so far that a big annual gain for the S&P appears as likely as a Detroit Lions playoff berth.) Then there's the tried-and-sometimes-untrue hemline theory promoted by Wharton School of Economics professor George W. Taylor in the 1920s - when skirts get shorter, markets go higher, he said.
So which musician might signal an end to this brutal stretch of stock market turbulence? Maybe we should hope for a Barbra Streisand comeback, according to Maymin. Despite her easy-listening reputation, Streisand's songs are usually rooted in the complex, varied beats that signal better financial times. And given the state of investment portfolios worldwide, even Babs's detractors long for a return to the way we were.
Mark Pothier is senior assistant business editor for the Globe. He can be reached at email@example.com.