Winter Blues: A SAD Stock Market Cycle

Abstract

And God said, Let there be light; and there was light. And God saw that the light was good. Genesis 1:3 Depression has been linked with seasonal affective disorder (SAD), a condition that affects many people during the seasons of relatively fewer hours of daylight. Experimental research in psychology has documented a clear link between depression and lowered risktaking behavior in a wide range of settings, including those of a financial nature. Through the links between SAD and depression and between depression and risk aversion, seasonal variation in length of day can translate into seasonal variation in equity returns. Based on supportive evidence from psychology which suggests SAD is linked closely with hours of daylight, we consider stock market index data from countries at various latitudes and on both sides of the equator. We model differences in the seasonal variation of daylight across coun