Does the Croatian Stock Market Have Seasonal Affective Disorder?

Tihana Škrinjarić,Branka Marasović,Boško Šego

doi:10.3390/jrfm14020089

Tihana Škrinjarić, Branka Marasović + Show 1 more

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https://doi.org/10.3390/jrfm14020089

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Abstract

This paper explores mood anomalies, specifically the seasonal affective disorder (SAD) effect on the Zagreb Stock Exchange (ZSE). SAD is defined as a syndrome of depressive episodes in human behavior due to the changing of the season. Thus, the motive of this research is to gain better insights into the investors’ sentiment regarding SAD effects. The purpose of the research is to observe how investors’ sentiment affects the return and risk series on ZSE and if this could be exploitable. Using daily data on stock market return CROBEX for the period January 2010—February 2021, SAD effects are tested to explore if seasonal changes affect the stock returns and risk. Besides the SAD variable in the model, some control variables are included as well: Monday, tax, and COVID-19 effect. The results indicate that SAD effects exist on ZSE, even with controlling for mentioned effects; and asymmetries around winter solstice exist. Implications of such findings can be found in simulating trading strategies, which could incorporate such information to gain profits. Limitations of the research focus on one market, observing static parameters of the estimated models, and observing simple trading strategies. Thus, future research should focus on international diversification possibilities, time-varying models, and fully exploring the exploitation possibilities of such findings.

Highlights

How does seasonal affective disorder (SAD) affect stock market participants and stock market returns; what are the consequences to investors’ trading strategies; as well as what are the implications to the financial theory and theoretical models are some of the interesting questions which arise in this field of research
The mentioned research found SAD effects on Zagreb Stock Exchange (ZSE), this study extends that research via different robustness checking of results and including the analysis of SAD effects on time-varying risk
To empirically evaluate SAD effects on the Croatian market, daily data on stock market index CROBEX were collected from Zagreb Stock Exchange (Zagreb Stock Exchange 2021), as well as the interest rate on 91 days Treasury bills from the Ministry of Finance (2021)

Summary

Introduction

Seasonal affective disorder (or winter blues, SAD henceforward) is a term developed in psychiatry in the late 1980s. It is defined as a mood disorder of humans who exhibit normal behavior and mood in the majority of the calendar year except fall and winter months—. For a detailed list from a psychological point of view, please refer to Roecklein and Rohan (2005). This phenomenon and its effects on investors and financial markets have become a more interesting topic of research in the last 10 years. From a theoretical point of view, the Efficient Market Hypothesis (EMH) of E. Fama (1965, 1970)

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