Financial Markets Get SAD

Stock market is linked to seasonal depression

/ Author:  / Reviewed by: Joseph V. Madia, MD

(RxWiki News) The financial markets are constantly in a state of flux, with great highs in the bull markets alternating with lows and even crashes or recessions.

But could these patterns have anything to do with the seasons, and mood swings that go with them? Researcher Lisa Kramer thinks so.

"Your stock investing may change with the season."

Her recent study tied the lows in financial markets with seasonal affective disorder, or SAD, a phenomenon in which people tend to get more depressed during winter months and in places where there is less daylight. Kramer's research showed that people who experience such seasonal depression were much less likely to take financial risks, but were more willing to take such risks in the spring and summer months.

Kramer, a professor at the University of Toronto's Rotman School of Management conducted the study along with Mark Weber of the University of Waterloo. The full sample included more than 1,000 participants at a large North American university, 331 of whom took part in all three waves of the study.

Participants were given the option of putting money into an investment with 50/50 odds, or one where potential gains exceeded potential loss, to mimic typical financial risk. Researchers used online surveys and behavioral assessments on the participants.

Those who experienced seasonal depression put their money in the lower risk option during winter months than those who didn't suffer from SAD; but in the summer months, things changed. Then, the SAD participants' risk tolerance was more in line with the norm.

"We've never, until now, been able to tie a pervasive market-wide seasonal phenomenon to individual investors' emotions," Kramer said. "Compared to previous research, the primary importance of this particular study is that it provides supportive evidence for the notion that individual behavior underlies some of the seasonality we see in financial markets. Until now we have had to make educated guesses about whether individual behavior was responsible for what we observe in aggregate markets, and this research helps to formalize the case."

She says that this study suggests that financial decision-making is much more inherently emotional. "It was remarkable to find that the relationship between depression and risk aversion isn't simply a seasonal affect. On average, depressed individuals were more risk averse than the non-depressed at all points in time, though the difference was largest in the winter."

The findings were published in Social Psychological and Personality Science in October 2011.

Reviewed by: 
Review Date: 
October 16, 2011
Last Updated:
October 17, 2011