By the Light of Day: The Effect of the Switch to Winter Time on Stock Markets

Abstract

We studied the effect of the end of Daylight Saving Time (DST) on stock markets around the globe. Using a detailed cross-country daily returns data set we found that (a) market returns on the day following the clock shift were significantly lower than the corresponding day of a week unaffected by the change; (b) the economic magnitude of the effect was substantial and averaged 5 – 6 times larger than the unconditional mean of market returns; and (c) the outcome was more prominent in local, relatively small markets. Furthermore, we attempted to identify the underlying mechanism of the gloomy market returns accompanying the switch to winter time. We found (a) no association between market returns and stock market geographic latitude, and (b) that the effect faded out almost immediately. These results — which are consistent with the literature on the human circadian system (which keeps us in sync with the 24-hour day) — suggest that the mechanism underlying the effect may be based on evanescent loss of investor internal clock harmony.