The folks out there who believe in the January Barometer likely weren't that happy when February 1 rolled around. After all, the S&P 500 was down about 6%, one of the worst January performances in the history of the index.

The January Barometer theory is based on the idea that the direction of the market in January will dictate the direction of the market for the whole year. The Stock Trader's Almanac 2007, which is published by the Hirsch Organization, says the theory has a .750 batting average for accuracy. I don't know anything about baseball, but it sounds pretty good. If Wikipedia is explaining the definition of "batting average" clearly, that works out to 75% accuracy, right? Fifty percent would be the expected accuracy rate if the January Barometer theory were just random chance.

In any case, Ben R. Marshall and Nuttawat Visaltanachoti, both of New Zealand's Massey University, have recently had a study posted on the SSRN Web site that evaluates the theory's accuracy using "stochastic dominance and manipulation-proof performance measures to account for risk, and dummy variable persistence and data mining adjusted test procedures."

When I read that line out loud, it sounds like one of Charlie Brown's teachers is talking to me. But I'm taking it to mean that the folks from Massey University did something very mathematical and/or statistical to filter out any biases or misleading data. Correct me if I'm wrong.

Once you get past the introduction, the study first gives a rundown on previous examinations of the theory and its portrayal in the media, then describes the methodology used and the findings.

What's pretty cool about "How Accurate is the January Barometer?" is that the authors applied their methodology to 22 equity markets around the world in addition to the United States, looking at 23 markets in the MSCI World Market Index (as well as the world index itself) during the 1970-2006 time period.

The data reveals that—not including the results for the U.S.—initially only Switzerland, Spain and the World Index (which historically is dominated by the performance of the U.S.) show any sort of statistically significant predictive qualities for January performance with regard to the performance of the following 11 months.

After the stochastic dominance hocus pocus and dummy variable persistence mumbo jumbo are applied, any predictive qualities become statistically insignificant for all three indexes. So basically the January Barometer is a wash for the rest of the developed world, according to Marshall and Visaltanachoti. With the U.S., the verdict is not necessarily so clear-cut.

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