Student, faculty research shows Groundhog Effect on stock prices

Ashley Klopfenstein ’20 is well aware of the lore of Punxsutawney Phil.

She has heard of the groundhog’s prediction skills when it comes to foreseeing an early spring on Feb. 2. However, she had no idea the impact the little guy had anticipating the ups and downs of the United States’ financial markets.

“It is quirky, but when you look at different underlying factors, The Weather Effect really lined up with what the groundhog was predicting,” she said.

Klopfenstein, a freshman at Marietta College, and Dr. John Fazio, Assistant Professor of Management, decided to delve into some behavioral finance research during the fall semester.

“We extended the weather anomaly of behavioral finance, which proposes that investor mood and therefore activity is positively influenced by good weather,” Fazio said. “We observed dramatically higher returns for all three major indices when Punxsutawney Phil predicated an early spring. These returns were visible both six weeks after Groundhog Day and for the calendar year.”

Fazio also noted that the observations passed a common test for statistical significance compared to returns for the periods Punxsutawney Phil predicted six more weeks of winter weather.

“Finally, we observed that this performance was not meaningfully influenced by the January effect, i.e., the performance of the first month, which is believed to influence the entire year,” he said.

The empirical results — gathered from 1965 to 2015 — showed a significant difference in annual performance for the S&P 500 (10.2 percent stronger), Dow 30 (13.8 percent stronger) and NASDAQ 100 (13.7 percent stronger) when Punxsutawney Phil predicts, “spring is just around the corner.” Fazio and Klopfenstein will also present their findings at the North American Management Society Annual Conference in Chicago from March 22-24.

Fazio, who was employed in the financial services industry for several years, said he has been interested in stock market folklore and wanted to research something that had never been reviewed before.

“In a whimsical moment one winter, it occurred to me that the stock market has bulls and bears, so why not groundhogs,” he said. “I casually observed a positive stock market reaction to Punxsutawney Phil’s prediction for an early spring and developed the idea for more definitive study.”

It wasn’t until he met Klopfenstein during orientation this fall that the idea became a reality. She expressed an interest in finance and doing some research — even in her first semester.

“I followed up with him the next day and he seemed interested in working on this research with me,” she said. “I really enjoyed working on it and this was a fun introduction to research. All of the data is already online and that was nice. I know I want to expand off of this and do something for All Scholars Day.”

Klopfenstein, whose brother is a biologist, said she was aware of the research he did in college, but never thought she would be doing much as a Finance major.

“I just didn’t think it was part of the discipline,” she said. “That’s why the early conversation I had with Professor Fazio was exciting and eye-opening.”

Fazio said it was a rewarding experience for him as well.

“It is very gratifying to see an enthusiastic student be involved in learning new concepts and methods that result in a unique outcome that has a wide body of interest, which should afford the student a level of recognition uncommon to freshman level students,” he said. “We are optimistic that a conference presentation and/or journal publication will result from this work. The experience and resultant confidence can only lead to much better future outcomes for the student.”

(Photo credit: Punxsutawney Groundhog Club, Inc.)