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DOW JONES     Could the pop-culture mood mirror stock market swings? (Christina)

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Christina     posted : 13/03/11   11:14 am


By Matt Krantz, USA TODAY
Sex, drugs, rock 'n' roll – and the stock market? Frustrated by traditional stock market tools that failed to warn investors markets were about to fall apart in 2007, some academics and analysts are wondering if trends in pop culture might provide more accurate clues of where stocks are headed.

It might seem like a strange idea. But if this way of thinking is right, the ramifications are profound. Forget studying stock charts, earnings and revenue when it comes to your portfolio. Think guitar riffs, Billboard charts and movie box office receipts, or so the theory goes.

POP QUIZ: Match the music with the market milestone

The idea linking culture to stock prices is surprisingly simple: The population essentially goes through mass mood swings that determine not only the types of music we listen to and movies we watch, but also if we want to buy or sell stocks. These emotional booms and busts are followed by corresponding swings on Wall Street.

"The same social elements driving the stock market are driving the gyrations on the dance floor," says Matt Lampert, research fellow at the Socionomics Institute, a think tank associated with well-known market researcher Robert Prechter, who first advanced the idea in the 1980s.

When people are in a collective good mood, for instance, they tend to listen to bubble-gum-pop music with a steady happy beat and opt for comedies on TV and in the movies. During these times, investors feel good about buying stocks and push them to extreme bubblelike highs, research from Prechter's Socionomics Institute finds.

Conversely, when they're in a funk, people gravitate to music with dark, complex tones and themes and horror movies or serious dramas. During these times, investors get nervous about stocks.

If true, this theory represents a direct assault on the stock market's long-accepted reputation as a coolly accurate discounter of future economic and corporate earnings activity. "Humans are very irrational," says Dennis Elam, professor of accounting at Texas A&M-San Antonio, pointing out that stocks "were driven to ridiculous lows" in the recent financial crisis. "There's nothing rational about that."


This decade's wild emotional shifts in music and stocks serve as a case study, Prechter says. The collective mood couldn't have been any higher than it was in January 2000. Stocks were hitting highs just as boy bands, Britney Spears and Christina Aguilera were topping the charts and Ricky Martin sang about Livin' La Vida Loca.

The peppy pop song Smooth, from Carlos Santana and Rob Thomas, hit the top of the charts and stayed No. 1 on the Billboard charts until Jan. 14, 2000 – the day the Dow Jones industrial average peaked and a nearly two-year-long bear market began, Lampert and colleague Euan Wilson found.

Music also reflected the population's sinking social mood as stocks began to tumble into another bear market in 2007. As stocks began to stumble, music also took a darker tone. Linkin Park, a band known for its screaming vocals and guitar, launched its top-selling Minutes to Midnight in 2007. And the following year, Spears ditched the goodie-two-shoes image and hit No. 1 for the first time in 10 years with the song Womanizer.

Some darker rock bands even get back together when the mood sours. AC/DC hit No. 1 on the Billboard charts in 2008, and The Sex Pistols returned to the concert circuit after the Dow peaked in 2007.

The connection of music, stocks and mood is more than coincidence, says Philip Maymin, professor of finance and risk engineering at New York University Polytechnic Institute. Maymin studied the so-called beat variance of music during market tops and bottoms. The higher the beat variance of music, the more complex it is. The lower the variance, the simpler it is, such as a steady beat of a dance song.

Maymin found simple dance tunes catch on just before times of turbulence in the stock market, a function of the masses becoming overwhelmed by optimism. For instance, A-ha's Take On Me hit single has one of the lowest beat variances of all time, Maymin says. It was a hit in 1986, before the crash of 1987.


The small screen is a little slower to reflect societal mood shifts, but it's still an accurate gauge, Wilson says. Popular shows on TV in 2008 were classic examples of the dark and heavy theme, foreshadowing more market trouble. One example was House, which stars a drug-addicted doctor. Wilson says the runaway popularity of vampire shows, including True Blood, highlights the population's fascination at the time with the darker side. Maybe it's not a good sign that vampires are still hot.


What better movie to show how negative the population had become than The Dark Knight, a Batman thriller set in "a world without rules," Elam says. The movie was a huge hit in early 2008, when the bear market had started and was months away from its biggest losses, he says.

The popularity of horror movies during economic downturns is especially telling, Elam says. Dracula, for instance, first captivated movie audiences during the Depression in the early 1930s. And The Exorcist was ruling in the theaters in 1973 and 1974, while that bear market raged on.

Critics of pop-culture market timing abound. "People do behave emotionally, and that's one thing that gets investors in trouble," says Burton Malkiel, Princeton economics professor and well-known market historian. But he says looking at pop culture as a way to predict stock prices is based on trying to draw conclusions based on dubious coincidences.

Still, proponents of the theory say pop culture is especially useful at confirming when mood is near an inflection point, something traditional market measures often miss.

Traditional ways of studying stocks "don't identify when things are going wrong," Wilson says. While investing on the idea that people are rational may work 90% of the time, "if you miss these times, such as in 2008 and 2009, I wouldn't call it useful."

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