National exuberance: A note on the Melbourne Cup effect in Australian stock returns

Abstract

This note examines the presence of a Melbourne Cup effect in Australian daily stock returns over the forty-five years from 3 January 1961 to 30 December 2005. First run in 1861, the Melbourne Cup is Australia's premier horse race and one of the world's leading handicaps. Parametric tests of differences in means and a regression-based approach are used to test for the effect alongside a conventional day-of-the-week (Tuesday) and month-of-the year (November) effects. The results indicate that the mean Melbourne Cup Day return of 0.1916 is significantly higher than the mean return for other Tuesdays in November (-0.2345), Tuesdays in other months of the year (-0.0352), and Monday, Wednesday, Thursday, and Friday returns throughout the year (0.0516). This suggests the exuberance associated with Australia's unofficial national day is translated into irrationally positive market behaviour.