American Economic Review Vol. 93 No. 1 2003

Winter Blues: A SAD Stock Market Cycle

Mark J. Kamstra¹; Lisa A. Kramer²; Maurice D. Levi³

¹ Atlanta Federal Reserve Bank, 1000 Peachtree Street NE, Atlanta, GA 30309. · ² Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario, M5S 3E6, Canada. · ³ Faculty of Commerce and Business Administration, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, Canada.

Abstract

This paper investigates the role of seasonal affective disorder (SAD) in the seasonal time-variation of stock market returns. SAD is an extensively documented medical condition whereby the shortness of the days in fall and winter leads to depression for many people. Experimental research in psychology and economics indicates that depression, in turn, causes heightened risk aversion. Building on these links between the length of day, depression, and risk aversion, we provide international evidence that stock market returns vary seasonally with the length of the day, a result we call the SAD effect. Using data from numerous stock exchanges and controlling for well-known market seasonals as well as other environmental factors, stock returns are shown to be significantly related to the amount of daylight through the fall and winter. Patterns at different latitudes and in both hemispheres provide compelling evidence of a link between seasonal depression and seasonal variation in stock returns: Higher latitude markets show more pronounced SAD effects and results in the Southern Hemisphere are six months out of phase, as are the seasons. Overall, the economic magnitude of the SAD effect is large.

DOI

10.1257/000282803321455322

Volume

93

Issue

1

Pages

324-343

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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