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Winter blues: a SAD stock market cycle

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Author Info
Mark Kamstra
Lisa Kramer
Maurice Levi

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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.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2002-13.

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Date of creation: 2002
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Handle: RePEc:fip:fedawp:2002-13

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Keywords: Stock market ; Stockholders;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Cao, Melanie & Wei, Jason, 2005. "Stock market returns: A note on temperature anomaly," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1559-1573, June. [Downloadable!] (restricted)
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Full references

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jacobsen, B. & Marquering, W.A., 2004. "Is it the weather?," Research Paper ERS-2004-100-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  2. 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. [Downloadable!]
    Other versions:
  3. Andrew W. Lo & Dmitry V. Repin & Brett N. Steenbarger, 2005. "Fear and Greed in Financial Markets: A Clinical Study of Day-Traders," American Economic Review, American Economic Association, vol. 95(2), pages 352-359, May. [Downloadable!]
    Other versions:
  4. Jian Hu, 2008. "Does Weather Matter?," Departmental Working Papers 0809, Southern Methodist University, Department of Economics. [Downloadable!]
  5. Lucy F. Ackert & Bryan K. Church & Richard Deaves, 2003. "Emotion and financial markets," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 33-41. [Downloadable!]
  6. Palomino, F.A. & Renneboog, L.D.R. & Zhang, C., 2008. "Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting," Discussion Paper 2008-99, Tilburg University, Center for Economic Research. [Downloadable!]
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  7. Veera Lenkkeri & Wessel Marquering & Ben Strunkmann-Meister, 2006. "The Friday Effect in European Securitized Real Estate Index Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 33(1), pages 31-50, August. [Downloadable!] (restricted)
  8. Anna Krivelyova & Cesare Robotti, 2003. "Playing the field: Geomagnetic storms and international stock markets," Working Paper 2003-5a, Federal Reserve Bank of Atlanta. [Downloadable!]
  9. Robert Chirinko & Hisham Foad, 2006. "Noise vs. News in Equity Returns," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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