The best economist says it is the “panic season” on the markets and that it is your fault to take a summer vacation. Blame the “harvest time” mentality

Lamont, who is a prominent economist in the quantitative hedgehist fund of $ 150 billion and was a member of the faculty at Harvard University, the Yale School of Management, the Graduate School of Business from the University of Chicago and the Princeton University, looked at financial history and found a surprising model. “Even if systematic actions are not your thing,” he wrote on his Acadian blog, Owenomics, “you must be mentally prepared for an epic financial disaster in the next three months.”

His research establishes a direct line between the moment of many most devastating financial crises and a secular scheme: market accidents tend to come together during the so-called “harvest time”, extending from August to October.

The historic model

“For graying practitioners of systematic equity strategies,” writes Lamont, “August is the most cruel month”. He returned his mind to the “Quake Quake” of August 2007, writing these analysts since August, spent “compulsively checking our phones and having nightmares on screens full of bright red figures”.

When he was contacted to comment by FortuneLamont said he was calling from the same house in Maine where he was in summer during the accident in 2007. Each year at that time, he added, that panic is “certainly in my mind”, as for all quantum action managers over 50 years of age.

Although the start of the great financial crisis in September 2008, Lamont wrote that the crash was a classic adjustment, occurring during a sleeping period on the markets when liquidity is thin because so many traders are far from their office. Lamont quotes modern research showing that August and September are unusual negotiation periods, as investors and market manufacturers take summer vacation in the northern hemisphere. The lower market liquidity means less capacity to absorb significant and sudden transactions – a recipe for excessive volatility if a crisis bursts.

Looking at the last 50 years, Lamont highlights the fact that most of the major crises of the American market have struck between August and October, when the thinner markets have amplified shocks. Among the historical collapse of the market during these months, there were two in September – the collapse of long -term capital management by September and 2008 and the bankruptcy of Lehman Brothers in 2008 – and two in October – the black stock market crash of Monday in October 1987 and the Asian financial crisis of 1997. But to return to the Foundation of the United States itself, it sees a similar scheme.

The deep roots of harvest time

Lamont wrote that the first American bubble, “Scriptania”, occurred in July / August 1791, and the panics of 1857 and 1873 took place respectively in August and September. Then the panic of 1907 followed in October.

The culprit is clear for Lamont: the summer holidays. But, in a chicken or egg discussion, he argues that the American agricultural economy created the need for free time in summer, because it was at this time that the harvests occurred and the money necessary to sink large cities of the east coast and in Western agricultural regions.

Lamont cited the diagnoses of Oliver Mitchell Wentworth Sprague of “Panic season” in the 1910s History of crises as part of the national banking system: “With a few exceptions, all our crises, panics and periods of less severe monetary rigor occurred in the fall, when the Western banks, by the sale of cereal crops, were able to withdraw large sums of money from the East of the East. “” The model was spotted in 1884 by the English economist William Stanley Jevons. The creation of the American system of the federal reserve itself was partly a reaction to such panics, adds Lamont, citing a 1986 American economic review Article by Jeffrey Miron.

“If you do raw mathematics, there is a 10% chance of epic disaster between August and October this year, and just 2% chance from November to July,” writes Lamont, warning investors of “mentally preparing” for disproportionate risk during the next quarter.

Lamont said Fortune that it is not particularly worried about the next panic season compared to any other. A market accident is always a “rare event”, he said, adding that he is not aware of any player particularly intended on the market which could trigger an accident. But then again, he added, he was not aware of none in August 2007 when the accident of Entere.

Distance harvest time?

Lamont agreed with FortuneThe comparison of the thesis of the harvest / panic season for “flash accidents”, which often occur during the night, after the end of America and before it begins in Asia. He said it was a bit of an extreme vacation in a non -liquid market, “like what would happen if everyone fell asleep.” He reiterated his conviction that “strange things happen” in the illiquid markets. Then, he became philosophical on the way in which the economy forces us to have a kind of appetite for strangeness.

What about Europe, which traditionally takes much more vacation in August, sometimes all month, compared to the Americans and their much more reserved leave policy? Lamont agreed, but noted that with America as a global global financial center, with a much larger market, the impact of thinner liquidity is felt more strongly. He noted that other academics have covered seasonalities in other countries, such as Australia, where this seems to be the opposite case, or the impact of seasonal affect disorder on trade in northern countries.

In the end, he said FortuneThe advantages of the current system prevail over the risks. The “traditional and heavy approach,” he said, would be to close the market, recalling trade in August.

Lamont said Fortune From his education in the two schools of economics which revolve around heavy regulations and libertarianism, with the tradition “of salt water” which he learned to put a major influence on him before spending eight years to teachers of the libertarian school “of fresh water”, the University of Chicago. “A basic principle of the economy is that you should let people trade,” he said, before adding that he also believes in behavioral finance, who maintains that “people spoil and that markets make mistakes.” He believes that governments are also making mistakes, he added.

The whole problem can be resolved over time by the rise in remote work, he added. “A theory would be that, because nowadays we can all work remotely, the holidays have less impact on the volume (negotiation),” he said. Lamont said he was working from his Maine house at the time, the week before his vacation in August scheduled in the same place.

For the moment, he added, we are trapped in the paradox of tradition that has started with our agricultural economy. People take a vacation in August because that is when people have a vacation. “Especially with family gatherings,” he said, “you want to be on vacation at the same time as your loved ones are on vacation.” How is it for behavioral finance?

For this story, Fortune Used a generative AI to help an initial project. An editor checked the accuracy of the information before the publication.