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SAD may have power to move financial markets

Heather Rudow October 13, 2011

(Photo:Flickr/MJ/TR (´・ω・))

Many analysts say the economic downturn began around Sept. 16, 2008, less than a week before the first official day of fall.  Perhaps that’s just a coincidence, but new research from the Rotman School of Management at the University of Toronto suggests that our internal reactions to the seasons — particularly when the months turn dark and cold — might have something to do with dips and crashes in the financial markets.

Though only 10 percent of the population struggles with severe seasonal depression, known as seasonal affective disorder (SAD), evidence suggests that others still experience a change in mood depending on the season. And according to previous research, seasonal patterns in stock market returns have been consistent with people avoiding financial risks in the fall and winter.

“So much common wisdom about economics and finance is built on the notion that we’re very rational about making financial decisions,” said study researcher Lisa Kramer. “But increasingly we’re discovering financial decision-making is an inherently emotional process.”

For her current study, which builds upon these pervious findings, she enlisted faculty and staff at a large, North American college:

“Participants were paid for each part of the study they joined, which included online surveys and behavioural assessments. They also had the option of putting some or all of their payment into an investment with 50:50 odds and where the potential gains exceeded the potential losses, to mimic financial risk. Participants who experienced seasonal depression chose more of the guaranteed payments and put less money at risk in winter, but their risk tolerance came more into line with other participants’ in summer.”

“We’ve never, until now, been able to tie a pervasive market-wide seasonal phenomenon to individual investors’ emotions,” Kramer said.

Source: Rotman School of Management

Heather Rudow is a staff writer for Counseling Today. Email her at hrudow@counseling.org.

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