Winter blues and time variation in the price of risk
AbstractPrevious research has documented robust links between seasonal variation in length of day, seasonal depression (known as seasonal affective disorder, or SAD), risk aversion, and stock market returns. The influence of SAD on market returns, known as the SAD effect, is large. The authors study the SAD effect in the context of an equilibrium asset pricing model to determine whether the seasonality can be explained using a conditional version of the capital asset pricing model (CAPM) that allows the price of risk to vary over time. Using daily and monthly data for the United States, Sweden, New Zealand, the United Kingdom, Japan, and Australia, the authors find that a conditional CAPM that allows the price of risk to vary in relation to seasonal variation in the length of day fully captures the SAD effect. This result is consistent with the notion that the SAD effect arises because of the heightened risk aversion that comes with seasonal depression.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 12 (2005)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/jempfin
Other versions of this item:
- Ian Garrett & Mark Kamstra & Lisa Kramer, 2004. "Winter blues and time variation in the price of risk," Working Paper 2004-8, Federal Reserve Bank of Atlanta.
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