UBC Reports | Vol. 48 | No. 3 | Feb.
Short winter days mean higher returns, researchers say
Study shows seasonal moods affect markets worldwide
by Lisa Miguez Commerce;Michelle Cook staff writer
Winter blues may be bad for us but not for the return on our portfolios,
according to research conducted recently in the Faculty of Commerce
and Business Administration.
The study, called Winter Blues: A SAD Stock Market Cycle,
shows that seasonal affective disorder (SAD) brought on by short,
dark days is associated with higher stock market returns.
The reason? People who are suffering from even mild depression
tend to take fewer risks, and are less likely to buy highly priced
stock says one of the paper's co-authors Prof. Maurice Levi.
On the opposite end of the scale, stock markets experience lower
returns during the long, bright days of summer.
The study surveyed annual data from stock exchanges located at
various latitudes around the world. The data produced an overwhelming
amount of evidence linking stock returns to the amount of daylight
through the course of the year.
Levi and co-authors Lisa Kramer, a former UBC post doctoral student
now teaching at the University of Toronto, and Mark Kamstra, an
economist at the Federal Reserve Bank of Atlanta, also found that
markets located farther away from the equator experienced greater
fluctuations from the SAD effect.
This was true for both markets in the northern and southern hemispheres,
although the southern markets, where the seasons are reversed, react
six months out of phase.
"Basically, whether people are in a good or bad mood it affects
the stock market and there are things, like seasonal changes, that
affect people," Levi explains. "The market is affected by people's
Levi says that while the study won't help those hoping to make
money off their blue moods, it overturns the traditional view that
human behaviour doesn't play a big role in stock market analysis.
Levi's search to find a systematic link between SAD and the stock
market builds on earlier research he and his colleagues did to link
the change to daylight savings time to market performance. Levi's
paper on the topic, "Losing Sleep in the Market: the Daylight Saving
Anomaly," was recently published by the American Economic Review.
Levi became interested in pursuing research in the area of behavioural
finance five years ago after reading the book Sleep Thieves
by UBC Psychology Prof. Stanley Coren. In it, Coren links an increase
in automobile accidents and a variety of other costly events to
changes in daylight savings time.