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Seasonality in Perceived Risk: A Sentiment Effect

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  • Guy Kaplanski

    () (Bar-Ilan University, Ramat Gan 5290002, Israel)

  • Haim Levy

    (The Hebrew University of Jerusalem, Jerusalem 91905, Israel)

Abstract

Studies which attribute markets’ seasonality to sentiment assume that seasonal affective disorder (SAD) creates seasonal fluctuations in risk-aversion which, in turn, affects prices. Employing the variance risk premium (VP), we directly test for seasonality in risk-aversion. We find significant seasonality in the VP which is not explained by exogenous events, market-realized variance and returns and major macroeconomic variables. We use the number of people who actively suffer from SAD to show that consistent with the SAD hypothesis VP and SAD are significantly positively correlated. International comparison reveals significant positive association between the magnitude of seasonally and the prevalence of SAD.

Suggested Citation

  • Guy Kaplanski & Haim Levy, 2017. "Seasonality in Perceived Risk: A Sentiment Effect," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, March.
  • Handle: RePEc:wsi:qjfxxx:v:07:y:2017:i:01:n:s2010139216500154
    DOI: 10.1142/S2010139216500154
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    Cited by:

    1. Bethke, Sebastian & Kempf, Alexander & Trapp, Monika, 2014. "Investor sentiment, flight-to-quality, and corporate bond comovement," CFR Working Papers 13-06 [rev.], University of Cologne, Centre for Financial Research (CFR).
    2. Nicholas Apergis & Alexandros Gabrielsen & Lee Smales, 2016. "(Unusual) weather and stock returns—I am not in the mood for mood: further evidence from international markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(1), pages 63-94, February.
    3. Bethke, Sebastian & Gehde-Trapp, Monika & Kempf, Alexander, 2014. "Investor sentiment, flight-to-quality, and corporate bond comovement," CFR Working Papers 13-06 [rev.2], University of Cologne, Centre for Financial Research (CFR).
    4. Symeonidis, Lazaros & Daskalakis, George & Markellos, Raphael N., 2010. "Does the weather affect stock market volatility?," Finance Research Letters, Elsevier, vol. 7(4), pages 214-223, December.
    5. Bethke, Sebastian & Gehde-Trapp, Monika & Kempf, Alexander, 2015. "Investor sentiment, flight-to-quality, and corporate bond comovement," CFR Working Papers 13-06 [rev.3], University of Cologne, Centre for Financial Research (CFR).
    6. Mamatzakis, E, 2013. "Does weather affect US bank loan efficiency?," MPRA Paper 51616, University Library of Munich, Germany.
    7. Daglis, Theodoros & Konstantakis, Konstantinos N. & Michaelides, Panayotis G. & Papadakis, Theodoulos Eleftherios, 2020. "The forecasting ability of solar and space weather data on NASDAQ’s finance sector price index volatility," Research in International Business and Finance, Elsevier, vol. 52(C).
    8. Muhammad Fayyaz Sheikh & Syed Zulfiqar Ali Shah & Shahid Mahmood, 2017. "Weather Effects on Stock Returns and Volatility in South Asian Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(2), pages 75-107, June.
    9. Tihana Škrinjarić, 2018. "Testing for Seasonal Affective Disorder on Selected CEE and SEE Stock Markets," Risks, MDPI, Open Access Journal, vol. 6(4), pages 1-26, December.

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