Listen to the Numbers: research shows connection between stock market and pop music

The top left chart shows the movement of the S&P 500 for a rolling one year period. The bottom two charts show the time series and histogram of daily returns for the period — the more vertical lines there are on the bottom left chart, the more volatile the market was at that time. On the top right is a music video for each year chosen to be representative of the rank of that year's average beat variance.

Rickrolling, a 2008 Internet meme that tried the patience of 18 million “Rickrolled” Americans, could be more than a by-product of clock-watching boredom. According to research by Phil Maymin, a Polytechnic Institute of NYU assistant professor of finance and risk engineering, Rickrolling may, surprisingly, have something to do with last year’s wildly volatile stock market.

If you don’t know what Rickrolling is, here’s the gist: when a person sends someone a URL in an instant message or email that she claims will direct the recipient to a page relevant to the topic at hand, but in fact is an alias that takes him to the 1988 Rick Astley music video “Never Gonna Give You Up,” she has engaged in an act of Rickrolling.

What’s significant about Mr. Astley’s infectious tune in regards to Professor Maymin’s research is its extremely low beat variance. Professor Maymin crunched data from 5,002 U.S. Billboard Top 100 songs and found that the popularity of songs with steady beats like that of “Never Gonna Give You Up” is higher during times of economic volatility.

Professor Maymin agrees that the results of his research are counterintuitive. “One would assume that during volatile economic times, people would listen to songs that matched the mood of the market. In fact, the opposite is true,” he says. “There appears to be a negative relation between music and market volatility. In tumultuous financial times, people prefer steadier music, and in stable financial times, people prefer tumultuous music.”

There’s an unanswered chicken-or-the-egg question to Professor Maymin’s findings. “In [the study], I do not determine whether mood comes first, influencing music purchases, or whether mood emerges from the music purchases themselves,” he says. “My goal was to make the first step in a new line of research by documenting the relationship between popular music and the market.”

In doing so, he may have struck upon an unlikely tool to make investment decisions. Options traders buy and sell stocks based, in part, on the expected price of that stock at a set point in the future. They use the phrases “buying volatility” and “selling volatility” to describe how they buy and sell options in relation to the stock market’s ups and downs. “If options traders looked to the Billboard Hot 100 as an indicator, with a rolling look back, they should have bought volatility in 2008,” explains Professor Maymin whose research compared the Billboard Top 100 to the S&P 500 from 1958 to 2007.

Professor Maymin’s study yields some helpful results for musicians too. In his paper “Music and the Market: Song and Stock Volatility,” he writes: “From the perspective of musicians deciding what types of songs to perform, the recent market volatility suggests that people will prefer steadier music, much like the 1980s.”

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Listen to Professor Maymin explain his findings on NPR's The Take Away, January 6, 2009