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MIT study explains why stocks swoon when school vacation ends

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Traders work on the floor of the New York Stock Exchange (NYSE) during early trading on Oct 14, 2014 in New York City.

[BOSTON] Why do stock markets tend to fall after long school breaks? Because investors need to catch up on all the bad news they missed while lounging on the beach or hitting the ski slopes with their kids.

That is the conclusion of new MIT research into the effect of the academic calendar on markets. The results were released on Friday, days ahead of school winter break in the northern hemisphere.

There is a broad "after holiday effect whereby market returns after major holidays are significantly lower than at other times," MIT Sloan School of Management Visiting Professor Lily Fang said in a press release.

She said the main reason appeared to be that "professional investors are collectively less focused on news and as a result, information is incorporated into stock prices more slowly." The effect is particularly strong for bad news because short-selling is more complicated and requires more attention than going long on a stock, she said.

Fang said she and her fellow researchers examined academic schedules in 47 countries and found that stock market returns average about 1 percent lower in months after major school holidays. The heaviest effect is for September, the traditional start of the academic year in the northern hemisphere.

September is the only month in which stock markets show an average decline over the past 20, 50 and 100 years, according to a Wall Street Journal analysis published earlier this year. January, which follows the winter holiday break, has shown an average decline over the past 20 years.

REUTERS