Noise Traders and Cultural Factors: The Japanese Rokuyo Effect Evidence Implications For Investor Sentiment Induced Return Anomalies

Abstract

This paper examines unique cultural features associated with the Japanese calendar known as rokuyo, which classifies days into six categories of varying levels of favorable/unfavorable sentiment days. Prior to the internationalization of Japanese financial markets in the early 1980s, rokuyo has a significant impact on both daily trading volume and returns. Thereafter it impact is greatly diminished. This research is consistent with prior studies that cultural factors and superstition affect investment decisions. The results support the hypothesis that noise trading induced return patterns, in general are not persistent over time. Anecdotal evidence is presented supporting the hypothesis investor sentiment influences equity prices through buying and selling pressure induced by dynamic money flow patterns precipitated by the evolutionary nature of financial markets. Additional evidence is provided by examination of the U.S. Monday effect and a proxy for mutual fund money flows over the period 1970-2011.

Keywords: Japan, rokuyo, cultural factors, investor sentiment, anomalies

JEL Classification: G11, G12, G14, G15