Top economist says it’s ‘panic season’ in markets and it’s your fault for taking summer vacation. Blame the ‘harvest time’ mentality

What is August actually about? Owen Lamont, Senior Vice President and Portfolio Manager at Acadian Asset Management, suggests that for regular people, it’s about enjoyable on the seaside, but for financial markets, it’s “panic season.”

Lamont, who is a main economist at the $150 billion quantitative hedge fund and has been a school member at Harvard University, Yale School of Management, University of Chicago Graduate School of Business, and Princeton University, seemed back at financial historical past, and discovered a startling sample. “Even if systematic equities aren’t your thing,” he wrote on his Acadian weblog, Owenomics, “you need to be mentally prepared for an epic financial disaster over the coming three months.”

His research attracts a direct line between the timing of many of the most devastating financial crises and a centuries-old sample: market crashes have a tendency to cluster during the so-called “harvest time,” spanning August to October.

“For grizzled practitioners of systematic equity strategies,” Lamont writes, “August is the cruelest month.” He solid his thoughts back to the “quant quake” of August 2007, writing that analysts ever since have spent August “compulsively checking our phones and having nightmares about screens full of glowing red numbers.”

When reached for remark by Fortune Intelligence, Lamont said he was calling from the same home in Maine where he was summering during the quant crash of 2007. Every 12 months around this time, he added, that panic is “certainly on my mind,” as it’s for any quant equities managers who is over 50 years outdated.

Although overshadowed by the onset of the Great Financial Crisis in September 2008, Lamont writes that the quant crash was a basic match, occurring during a sleepy time in markets when liquidity is skinny because so many merchants are away from their desks. Lamont cites trendy research exhibiting that August and September are durations of unusually low trading liquidity, as traders and market makers take summer holidays in the Northern Hemisphere. Lower market liquidity means less capability to take in big, sudden trades—a recipe for outsized volatility if a disaster does erupt.

Looking at the past 50 years, Lamont underscores the fact that most major U.S. market crises have struck between August and October, when thinner markets amplified shocks. Among the historic market meltdowns during these months had been two in September—1998’s collapse of Long-Term Capital Management and 2008’s Lehman Brothers chapter—and two in October—1987’s Black Monday stock market crash and 1997’s Asian financial disaster. But going back to the founding of the United States itself, he sees a comparable sample.

Lamont wrote that America’s first bubble, “Scriptomania,” occurred in July/August 1791, and the Panics of 1857 and 1873 occurred in August and September, respectively. Then the Panic of 1907 adopted in October.

The perpetrator is clear to Lamont: summer trip. But, in a chicken-or-the-egg dialogue, he argues that America’s agricultural economic system created the need for time off in the summer, as that was when harvests occurred and money needed to move from the big East Coast cities and into the Western agricultural areas.

Lamont cited Oliver Mitchell Wentworth Sprague‘s diagnoses of “panic season” in 1910’s History of crises under the national banking system: “With few exceptions all our crises, panics, and periods of less severe monetary stringency, have occurred in the autumn, when the western banks, through the sale of the cereal crops, were in a position to withdraw large sums of money from the East.” The sample was noticed as far back as 1884 by English economist William Stanley Jevons. The creation of the U.S. Federal Reserve system itself was in half a response to such panics, Lamont provides, citing a 1986 American Economic Review article by Jeffrey Miron.

“If you do the rough math, there’s a 10% chance of an epic disaster between August and October this year, and just a 2% chance from November through the following July,” Lamont writes, cautioning traders to “be mentally prepared” for outsized risk in the coming quarter.

Lamont told Fortune Intelligence that he’s not notably nervous about the coming panic season in contrast to any other. A market crash is still a “rare event,” he said, including that he’s not conscious of any notably levered gamers in the market that may spark a crash. But then again, he added, he wasn’t conscious of any in August 2007 when the quant crash occurred.

Lamont agreed with Fortune‘s comparison of the harvest/panic season thesis to “flash crashes,” which often occur overnight, after trading in America ends and before it starts in Asia. He said that’s a bit of an excessive trip of an illiquid market, “like what would happen if everyone went asleep.” He reiterated his perception that “weird stuff happens” in illiquid markets. Then he bought philosophical about how economics require all of us to have some type of urge for food for weirdness.

What about Europe, which historically takes for much longer holidays in August, sometimes the entire month, in contrast to Americans and their a lot more reserved time-off coverage? Lamont agreed, but famous that with America as the world’s global financial heart, with a a lot bigger market, the impression of thinner liquidity is felt more strongly. He famous that other teachers have lined seasonalities in other nations, such as Australia, where it appears to be the reverse case, or the impression of seasonal have an effect on disorder on trading in northern nations.

Ultimately, he told Fortune, the advantages of the current system outweigh the dangers. The “traditional, heavy-handed approach,” he said, can be to shut the market down, calling off trading in August altogether.

Lamont told Fortune of his upbringing in the two colleges of economics that revolve around heavy regulation and libertarianism, with the East Coast “saltwater” custom he realized at MIT a major affect on him before he spent eight years on school at the libertarian “freshwater” college, the University of Chicago. “A basic principle of economics is you should let people trade,” he said, before including that he also believes in behavioral finance, which holds that “people mess up and markets make mistakes.” He believes that governments make errors, too, he added.

The entire issue could also be resolved over time by the rise of distant work, he added. “One theory would be that because nowadays we can all work remotely, vacations are less impactful on [trading] volume,” he said. Lamont said he was working remotely from his Maine home at the time, the week before his deliberate August trip in the same location.

For now, he added, we’re trapped in the paradox of custom that started with our agricultural economic system. People take trip in August because that’s when people take trip. “Especially with family gatherings,” he said, “you want to be on vacation the same time your relatives are on vacation.” How’s that for behavioral finance?

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the data before publishing. 

This story was initially featured on Fortune.com