Friday, July 15, 2011

The Hathaway Effect

When over 70% of daily stock trades are being executed by robotraders - supercomputers using complex algorithms, often unintelligible even for the very same whiz who programmed them - strange things can happen. Some can be painful, like the May 6, 2010 flash crash, when the DJIA lost and recovered roughly 9% of its value in a matter of minutes. Some, however, are just odd.

With headquarters in Omaha, Nebraska, Berkshire Hathaway is an American conglomerate holding company whose CEO and chairman is the well known value investor Warren Buffet. Anne Hathaway is a talented 1982-born American actress who has been on the rise in the past few years, starring in hit movies such as The Devil Wears Prada (2006) and Alice in Wonderland (2010). Other than name and nationality, the two seem to have nothing in common, except that Berkshire Hathaway shares (BRK.A and BRK.B) seem to post significant gains on days when the homonymous actress is populating the news. Blogger Dan Mirvish was the first to spot this pattern, pointing out a few occasions since 2008 where the correlation was striking:
  • September 26, 2008 - Passengers opens:  BRK.A up 1.43%
  • October 3, 2008 - Rachel Getting Married Opens:  BRK.A up 0.44%
  • January 5, 2009 - Bride Wars opens:  BRK.A up 2.61%
  • February 8, 2010 - Valentine's Day opens:  BRK.A up 1.01%
  • March 5, 2010 - Alice in Wonderland opens:  BRK.A up 0.74%
  • November 24, 2010 - Love and Other Drugs opens:  BRK.A up 1.62%
  • November 29, 2010 - Anne announced as co-host of the 83rd Academy Awards:  BRK.A up 0.25%
  • February 28, 2011 - Anne co-hosts the 83rd Academy Awards:  BRK.A up 2.94%

The idea is not outrageous. In fact, with today’s technology it is very easy to program softwares to pick up on key words, and more sophisticated ones can read for sentiment too. We actually crunched the numbers (see table below) and found that the average daily return during major Anne Hathaway news appearances since January 2008 was 1.38%, while it was -0.02% on all other days. A simple statistical test based on sample size and standard deviations indicates that the two average daily returns are statistically distinguishable from each other with 98% confidence.

2008 to Date
Anne Hathaway Event
No Anne Hathaway Event
Number of Days
Average Daily Return
Standard Deviation

The fact that Anne’s news appearances correlated with positive returns in Berkshire Hathaway shares, instead of generating simple trading volume increases, makes us wonder whether these robotraders could actually read for sentiment (news regarding Anne Hathaway are seldom negative). Just in case, you may want to think twice before naming your company Lohan or Sheen.