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Winter blues and time variation in the price of risk

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Author Info
Ian Garrett
Mark Kamstra
Lisa Kramer

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Abstract

Previous 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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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2004-8.

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Date of creation: 2004
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Handle: RePEc:fip:fedawp:2004-8

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  1. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, 06. [Downloadable!] (restricted)
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  2. Tokunaga, Howard, 1993. "The use and abuse of consumer credit: Application of psychological theory and research," Journal of Economic Psychology, Elsevier, vol. 14(2), pages 285-316, June. [Downloadable!] (restricted)
  3. Malliaropulos, Dimitrios & Priestley, Richard, 1999. "Mean reversion in Southeast Asian stock markets," Journal of Empirical Finance, Elsevier, vol. 6(4), pages 355-384, October. [Downloadable!] (restricted)
  4. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June. [Downloadable!] (restricted)
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  5. Saunders, Edward M, Jr, 1993. "Stock Prices and Wall Street Weather," American Economic Review, American Economic Association, vol. 83(5), pages 1337-45, December. [Downloadable!] (restricted)
  6. Ritter, Jay R, 1988. " The Buying and Selling Behavior of Individual Investors at the Turn of the Year," Journal of Finance, American Finance Association, vol. 43(3), pages 701-17, July. [Downloadable!] (restricted)
  7. Harvey, Campbell R., 1989. "Time-varying conditional covariances in tests of asset pricing models," Journal of Financial Economics, Elsevier, vol. 24(2), pages 289-317. [Downloadable!] (restricted)
  8. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  9. Tim Bollerslev & Jeffrey Wooldridge, 1992. "Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances," Econometric Reviews, Taylor and Francis Journals, vol. 11(2), pages 143-172. [Downloadable!] (restricted)
  10. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  11. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December. [Downloadable!] (restricted)
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  12. Mark J. Kamstra & Lisa A. Kramer & Maurice D. Levi, 2003. "Winter Blues: A SAD Stock Market Cycle," American Economic Review, American Economic Association, vol. 93(1), pages 324-343, March. [Downloadable!]
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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. Dirk Brounen & Yair Ben-Hamo, 2009. "Calendar Anomalies: The Case of International Property Shares," The Journal of Real Estate Finance and Economics, Springer, vol. 38(2), pages 115-136, February. [Downloadable!] (restricted)
  3. Ronald Doeswijk, 2008. "The Optimism Cycle: Sell in May," De Economist, Springer, vol. 156(2), pages 175-200, June. [Downloadable!] (restricted)
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