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Friday, January 23, 2009

Music and the Market: Song and Stock Volatility

Philip Maymin is Assistant Professor of Finance and Risk Engineering at Polytechnic Institute of New York University. Maymin, who was born in Moscow, graduated from Harvard in 1997 with a B.A. computer science and an M.S. in applied mathematics, earning both degrees in just 3 and a half years. He completed his PhD in Finance at the University of Chicago Graduate School of Business in 2007. Maymin has had a varied career for someone his age, including running for the US House of Representatives, managing his own hedge fund, and acting in the moive "Starving Artists" - which in 1998 won a feature film award at the NY International Independent Film and Video Festival.

Maymin recently published a paper titled Music and the Market: Song and Stock Volatility.

I compare the annual average beat variance of the songs in the US Billboard Top 100 since its inception in 1958 through 2007 to the standard deviation of returns of the S&P 500 for the same year and find that they are significantly negatively correlated. With the recent high stock volatility, people should now prefer less volatile music. Furthermore, the beat variance appears able to predict future market volatility, producing 2.5 volatility points of profit per year on average.

Dr. Maymin created a multimedia time-flow analysis document and posted it on YouTube. It compares stock market data from 1957 to the end of 2008 against the corresponding the popular music of the time.

Maymin notes:

Can you tell just by watching and listening if higher market volatility tends to correspond to popular music that is steadier, and vice versa? Or is it a phenomenon that can only be tracked quantitatively? 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.

I have always been a critic of music constructed entirely out of hard and steady rhythmic pulsations (such as in Minimalism). It's interesting that higher market volatility tends to correspond to musical compositions that are steadier, and it also lends scientific support to my theory that the economy and our musical culture would be better served with molto rubato.