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Behavioral Economic studies have shown that people like to defer financial decisions until after anticipated information is disclosed even when that information is not relevant to the decision at hand. Election and sporting event outcomes are good examples of irrelevant information causing the delayed implementation of financial decisions. Overall this may help explain the rise in trading volume and price volatility immediately after such events. It turns out the "event" result did not and would not have changed how they decided, but they wait until the outcome because they will believe the outcome will provide them with valuable information to utilize in making their decision.
Related to this is something else. Studies have also shown that people compulsively look for trends in data and conclude that there is a relationship between one occurrence and something else happening. Statisticians understand that the occurrence between one event and another does not necessarily mean that there is a nexus between the two no matter how many times the two events occur in tandem. If you are in the financial services industry you understand that for beta to be meaningful your r-squared has to be at a certain level (some put it at 70% or higher) otherwise the beta you observe is meaningless.
An illustration:
As a coin is flipped in succession, if the results are predominately one sided, say 5 out 6 are heads, virtually everyone will be inclined to think that within the next few tosses a "tails" is highly likely to come up given the previous results. In the parlance it's "due." In reality the probability that a "tails" will come up on a toss is always 50-50 no matter what the previous record is, no matter how lop sided and no matter how extended it may become.
There is no connection (nexus) between the results of the previous tosses and the forthcoming toss and never will be. Yet we compulsively believe there is one. Don't believe me?* Can you say "Super bowl Effect?" Bet you can't spell the town "Phil" comes from though. See at least one groundhog and the super bowl do have something in common, a myth about predicting the future.
You may wish to add the foregoing to your list of reasons why people are habitually a day late and a dollar short when making financial decisions*. They are waiting for an outcome of something which has nothing to do with the outcome of a decision they are contemplating.**
*two links you may find interesting:
** I cannot fail to mention Statten Island Chuck, General Beauregard Lee and Wiarton Willie. None of these groundhogs will comment on this matter. There is, of course, no doubt someone down at your local sports bar who will swear that there is a cause and effect between the outcome of the super bowl and the economy during the forthcoming year. My guess is that someone has bet heavily on the game and therefore the game's outcome will have an effect on his 2010 economic outcome.
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