How will this month’s solar eclipse impact stock market trading?
Mood-altering phenomena have historically resulted in atypical investor behaviour, says researcher
Canadian Securities Institute Research Foundation Term Professor of Finance, Mark Kamstra, is available to comment on potential negative impact on the markets
August 2, 2017 – Toronto, Canada –The first total solar eclipse in 38 years, set for August 21, could be a bad day for stock markets, predicts a professor at the Schulich School of Business who has studied how mood disturbances, such as that arising from seasonal depression or a time change, can impact markets.
Research shows that weather-related psychological states, such as seasonal affective disorder (SAD), can cause heightened risk aversion by investors, says Mark Kamstra, Professor of Finance at Schulich School of Business at York University in Toronto, Canada.
Kamstra is a co-author, with Lisa Kramer of the University of Toronto and Maurice Levi of the University of British Columbia, of “Winter Blues: A SAD Market Cycle.” The study found that stock market returns in countries around the world are “significantly related to the amount of daylight through the fall and winter.”
Just as seasonal affective disorder (SAD), a depressive medical condition caused by the shortness of the days in fall and winter, results in a seasonal time-variation of stock market returns, the August 21 solar eclipse could impact the markets, says Kamstra.
“Historically, solar eclipses have inspired great fear, and, even today, some superstition remains for many people, so the markets can expect some fallout,” says Kamstra. “Investors may want to avert their eyes from market moves as well as the glare of the eclipse when the moon cuts in front of the sun later this month.”
In their paper, Kamstra et al investigate the role of seasonal affective disorder (SAD) in the seasonal time-variation of stock market returns. SAD is an extensively documented medical condition whereby the shortness of the days in fall and winter leads to depression for many people. Experimental research in psychology and economics indicates that depression, in turn, causes heightened risk aversion. Building on these links between the length of day, depression, and risk aversion, they provide international evidence that stock market returns vary seasonally with the length of the day, a result they call the SAD effect. Using data from numerous stock exchanges and controlling for well-known market seasonals as well as other environmental factors, stock returns are shown to be significantly related to the amount of daylight through the fall and winter. Patterns at different latitudes and in both hemispheres provide compelling evidence of a link between seasonal depression and seasonal variation in stock returns: Higher latitude markets show more pronounced SAD effects and results in the Southern Hemisphere are six months out of phase, as are the seasons. Overall, the economic magnitude of the SAD effect is large.
The full paper is available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=208622
Contact:
Mark Kamstra
Canadian Securities Institute Research Foundation Term Professor of Finance
Schulich School of Business
York University, Toronto
Email: mkamstradx@schulich.yorku.ca
Beth Marlin
Media Relations
Schulich School of Business
York University, Toronto
Email: bmarlin@schulich.yorku.ca