UBC Reports | Vol. 48 | No. 3 | Feb. 7, 2002

Short winter days mean higher returns, researchers say

Study shows seasonal moods affect markets worldwide

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 animal feelings."

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.