Depression moves the markets

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Could it be that depression can move a financial market? Maybe the latest dips and twists are related to weather rather than global markets.

“We’ve never, until now, been able to tie a pervasive market-wide seasonal phenomenon to individual investors’ emotions,” says Prof. Lisa Kramer, who teaches at the University of Toronto’s Rotman School of Management. Her article is called “This is Your Portfolio on Winter.” It was co-written with University of Waterloo’s Mark Weber.

Prof. Kramer’s most recent study shows that people who experience seasonal depression avoid financial risk during seasons with diminished daylight. They are more likely to accept risk in spring and summer. She suggests that seasonal depression could be strong enough and pervasive enough to change markets.

For this study, they hired faculty and staff at a large American university to participate in a multi-faceted study. Every month they were paid and they were given options with what they could do with the money. One was a risky investment which could double their money. They found that in the winter months, fewer people participated in that option.

While ten percent of the population suffers from seasonal affective disorder (SAD) it has been found that even people without a diagnosis still experience some degree of seasonal fluctuation of mood. When compared to stock market returns, their findings are consistent with people avoiding financial risk in 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 Prof. Kramer. “Bur increasingly we’re discovering financial decision-making is an inherently emotional process.”

Stock traders, day traders and financial consultants should take a personal inventory and be sure their decisions and their advice is not being unduly influenced by the climate. “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,” she concluded.

Source: MedicalNewsToday

 
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