"We've uncovered a very large economically and statistically significant seasonal pattern in stock markets that hasn't been recognized until now," says University of Toronto business professor Lisa Kramer, who co-authored the study Winter Blues: A SAD Stock Market Cycle, published in the March issue of American Economic Review.
Kramer, along with co-authors Mark Kamstra of the Atlanta Federal Reserve Bank and Maurice Levi of the University of British Columbia, examined the role of seasonal depression, known as seasonal affective disorder (SAD), and stock market behaviour. SAD is a medical condition in which patients suffer varying degrees of depression due to reduced levels of daylight. About 15 per cent of the world's population suffers from SAD to some degree.
By examining data from nine stock markets worldwide, the researchers found people affected by seasonal depression are more risk-averse when days are shorter in the fall. When days start to lengthen in the winter, people are more willing to take risks. Their investment behaviour, in turn, has a negative effect on stock markets in the autumn but a positive one during the winter.
The researchers also discovered this seasonal stock market fluctuation is consistent in the southern hemisphere where seasons are reversed. Fluctuations are also more pronounced in countries at higher latitudes than in those near the equator.
CONTACT: Professor Lisa Kramer, Rotman School of Management, 404-271-5098, lkramer@chass.utoronto.ca or Sue Toye, U of T public affairs, 416-978-4289, sue.toye@utoronto.ca
Journal
American Economic Review