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Well, here’s a paper:
Binge-watching late-night TV shows has become far more common due to the popularity of streaming services such as Netflix and Amazon and their ‘dump release’ of new shows at midnight. We examine how the sleep loss associated with this phenomenon affects financial markets and find that market returns significantly decline on the day following the release of popular late-night shows.
What we have here — from researchers Arbab Cheema, Arman Eshraghi, Raghavendra Rau and Qingwei Wang — is a novel way to test how much trader fatigue can move stocks.
Most of the existing literature on the theme examines so-called daylight saving time anomaly, which says market returns are relatively poor for up to a week after clocks go forward. Traders with disrupted circadian rhythms may take longer to process news, and may be more averse to risk. They demand higher risk premiums and might close positions to just give themselves a rest, the theory goes.
Daylight-saving time offers researchers a big and relatively uniform test sample, since everyone in a local market will be working to the same clock. The research also has a purpose of sorts, since it contributes to a wider debate around the economic and social effects of time-shifting.
Unfortunately for the clock-change abolitionists, the data showing a correlation between leap-hours and market underperformance looks a bit sketchy and the conclusion has been widely contested.
Compared with losing an hour during the weekend, binge-watching TV until sunrise will take more out of traders, Cheema et al reason. If enough people are doing it, their self-inflicted lassitude might be visible in the next day’s session’s pricing.
The researchers have no way to measure how many traders are staying up to cram in a whole season of Stranger Things or Succession on the night of release, but from the decade of data collected, they speculate that it’s quite a few:
We find that market returns are significantly down on days following popular late-night shows. [ . . . ] On average, the S&P 500 index drops by about 0.25 per cent on the day following these shows. Annually,the decrease in market returns is around 2.3 per cent cumulatively, based on an average of 10 popular shows being released every year.
Previous trader fatigue studies have tended to find smaller-company stocks most affected, perhaps because they attract a higher proportion of retail punters who are more prone to trading on emotions.
The Cheema et al study finds the opposite. The day-after effect is most pronounced for stocks with larger market capitalisation and higher institutional ownership.
Professional investors already sleep fewer hours than normal people, so maybe they have less of a buffer when watching six episodes back-to-back of Cobra Kai, the researchers speculate. Dealing costs might also play a part, with knackered traders choosing to sell large-cap stocks because they have the tightest bid-ask spreads and lowest brokerage costs.
Even pros get lazy, they say:
We find a cross-sectional variation in the impact of sleep deprivation that implies that sophisticated institutional investors are prone to an emerging cultural trend of watching late-night TV that affects their cognitive abilities. [ . . . ] We propose that the asymmetric allocation of cognitive resources by sleep-deprived investors to buying and selling decisions provides a novel explanation for the lower returns.
We’ve not gone through the paper’s working yet, so we can’t comment on the robustness of the methodology. Nor have we spoken to the authors, so the point might have escaped us.
A quantitative hedge funds could perhaps extract something from the study’s finding of a 0.25 per cent average daily underperformance for the S&P 500, based on 50-odd season debuts over a 10-year sample period. But a glance at the shows listed in the appendix — Dopesick, Sense8, Peaky Blinders, The Great British Baking Show (sic) — suggests a broad definition is required of what makes appointment TV.
Maybe the idea is to show how geographic markets underperform whenever a high proportion of their local participants are feeling tired and emotional? That’s potentially actionable information ahead of Christmas party season, and with World Cup 2026 on the horizon, but good luck trading around such events when their most obvious consequence is low volume.
Another possibility is that we are at the beginning of a campaign to ban midnight content dumps by streaming services due to their deleterious economic and social effects. It’ll need more convincing evidence, but it’s a start.
On these pages we recently rejected the possibility that takeovers of Warner Bros are harbingers of stock market Armageddon. One angle we did not consider is that Netflix, one of Warner’s proposed buyers, may be a pernicious drain on stock market performance all on its own.
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