Back-beat as a stockmarket tool
p2pnet news view | Cool:- Music Hath Charms to Soothe the Savage Breast, said William Congreve (1670-1629).
But it may also have the power to predict stock-market volatility, says Phil Maymin, an assistant professor of finance and risk engineering at the Polytechnic Institute of New York University.
He’s, “crunched 50 years worth of stock-market data — along with more than 5,000 hit songs” and says he’s found an, “inverse correlation between stock-market volatility and whether the hot music of the moment is frenetic or steady,” says Smart Money, and, that means, “When the stock market endures periods of high volatility — such as the one we’re in right now — chart-topping songs tend to have low ‘beat variance,’ according to Maymin’s research. The opposite is also true, he says. Low-volatility markets correlate with music showing high beat variance.”
Or to put it another way, “I compare the annual average beat variance of the songs in the US Billboard Top 100 since its inception in 1958 through 2007 to the standard deviation of returns of the S&P 500 for the same year and find that they are significantly negatively correlated,” says Maymin in the abstract to his paper, Music and the Market: Song and Stock Volatility.
Specifically?
“Anecdotally, music and finance are linked,” he says. “Try imagining the music and dancing of the roaring 1920s without the accompanying stock market bubble, the happy pop rock of the 1980s without its steady climb, or the angst-ridden chart-toppers of the late 1990s without its giddy highs.
“A link between musical and financial measures can come about through mood. Perhaps a general mood prevails in the country that influences both the music people listen to and how they trade, or perhaps a relatively exogenous market influences a nation’s mood, in turn causing songs with particular qualities to become more popular.”
Conclusion?
“There appears to be a negative relation between music and market volatility,” Maymin states in his paper, adding:
“In tumultuous nancial times, people prefer steadier music, and in stable nancial times, people prefer tumultuous music. Furthermore, it appears as if musical tastes can predict future market volatility: a strategy based on predicting market volatility from past beat variance appears pro table on average. A propensity for music and trading are arguably two features that distinguish humans from other primates, but the link between them has not been studied, partially due to a difficulty in obtaining quantitative data.
“This paper shows not only that there is a link between song and stock volatility, but that the causality appears to go in the least expected direction; namely, today’s popular music seems to predict tomorrow’s market volatility.
“Future research could include replicating these results for other markets when the requisite data for their charts and songs become available.”
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Smart Money – Can Music Predict the Stock Market’s Volatility?, December 5, 2008
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December 9th, 2008 at 2:57 am
Nice theory, but to my way of thinking it fails for several critical reasons that should be obvious to any reader of this (or several other) p2p/music-related sites:
1. “Hit” songs: we all know — and everybody has known this for far too long for this to be any kind of secret — that “hits”/Top 40/whatever you want to call is, result NOT from any meaningful “public response”, but from the slick marketing tactics of “Big Media”. From the 1950s “Payola” scandals to the current mainstream dominance of the Clear-Channel Crap machine, nobody can seriously make the claim that so-called “hits” are even remotely representative of public tastes/preferences.
Now, a study on the relative fan-base of various musical genres over time might be halfway informative, but I seriously doubt it.
So, the first point against this theory is that he’s using a loaded sample pre-selected by Big Media.
2. The second problem with this model is essentially the flip-side of the first: concentrating on “hits” automatically excludes the REAL music-fans who DO have definite “preferences”: namely, those who aren’t “into” whatever mindless pablum is being puked up by Big Media at any given time. Rap, Hardcore Punk, “Rock and Roll” during the 1950s, Bluegrass etc. — ALL began as decidedly non-”mainstream” scenes, largely in reaction AGAINST whatever the prevailing “hit-machine” of the time was doing. Music genres tend to begin — and remain — popular among a relatively “small” (IE, not “mass-market”) fanbase, upon whom the genre actually depends for it’s existence. The history of the recording industry has demonstrated over and over that the “major labels” only clue into a “scene” AFTER it’s already emerged, at which time they busily set about buying a few “fortunate” groups/artists and creating vapid, dumbed-down versions ot it. Prime example of this from the 1950s was the entire career of Pat Boone (soullessly inoffensive versions of songs recorded by acts relegated to “race” labels etc.)
The REAL test of what people “prefer” relative to the stock market is: what’s happening in non-RIAA “scenes”?
But I do like how guys like this figure out innovative ways to waste time “researching” stuff nobody’ll ever be able to use.