Winter blues depress financial markets

U. TORONTO (CAN) — People who experience seasonal depression avoid taking financial risks during seasons with less daylight, but are more willing to take a gamble in spring and summer.

A new study, published in Social Psychological and Personality Science, builds on previous studies suggesting seasonal depression may be sufficiently powerful to move financial markets.

“We’ve never, until now, been able to tie a pervasive market-wide seasonal phenomenon to individual investors’ emotions,” says Lisa Kramer, associate professor of finance at the University of Toronto.


The researchers based their findings on a study of faculty and staff at a large North American university. Participants were paid for each part of the study they joined, which included online surveys and behavioral assessments.

Participants 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.

Those who experienced seasonal depression chose more of the guaranteed payments and put less money at risk in winter. Their risk tolerance came more into line with other participants’ in summer months.

About 10 percent of the population suffers from severe seasonal depression, known as seasonal affective disorder (SAD). Even people who do not suffer from the medical condition still experience some degree of seasonal fluctuation in mood.

Previous research has noted seasonal patterns in stock market returns have been consistent with people avoiding risk 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,” Kramer says. “But increasingly we’re discovering financial decision-making is an inherently emotional process.”

The findings have implications for financial planners and stock traders who may need to be more sensitive to seasonal variation in clients’ risk tolerance, says Kramer. “It’s important to take a deep breath and make sure that decisions are being made on the basis of objective criteria, rather than emotional criteria.”

Mark Weber at the University of Waterloo is the paper’s co-author.

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