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Socionomics and Pop Music: What Katy Perry’s Success Means for Stocks

Two opposing theories.

The intuitive-friendly one:

Pop music taste is something that both Casti and Prechter pay close attention to. The theory is that the instantaneous feedback of the Billboard Top 40 rivals the Big Board itself – whether it’s the most requsted songs on the radio, or the daily advance/decline ratio on the NYSE, both are effective measures of social mood.

In general, Casti and Prechter observe a correlation between stock prices and popular music tastes – for example:

  • * Upbeat music during rising bull markets – Think upbeat rock & roll of the 1950’s and early-to-mid 1960’s (The Beatles, The Beach Boys), along with the general upbeat music of the 1980’s and 1990’s (Michael Jackson, Madonna).
  • * Depressed and angry rock during the bear market of 1966-1982 (Led Zepplin, Pink Floyd).
  • * “Bubble gum” pop hits during market tops – songs that express moods of outright euphoria (California Gurls)

The idea is that a turning point in pop culture may signal a turning point in social mood before stock prices. For example, in Prechter’s previous work, he’s cited the upbeat pop culture mood of the early 1980’s as a signal that the bull market was back on. And when social mood is outright euphoric, and stock prices are topping, other sociometers are also “off the hook”.

via The Contrary Investing Report.

Alternate Counter-intuitive empirical conclusion

The higher the Down Jones average, the more top songs are in a minor key. Booms are associated with slower music in a minor key while busts are associated with faster music in a major key. The higher the stock market, the lower the beats per minute. People use music to calm down in boom times and excite themselves during slumps. The strength of the relationship is too large to disregard. In the past, individuals in finance have used trends in music to try and predict the stock market. The relationship I have uncovered is significantly stronger.

This means that the stock market sets the mood, which primes us with regards to what music we listen to- not vice-versa.

Dow Jones 1955 – 2009 plotted against beat per minute

via Darwin vs. The Machine.

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