“It helps us understand why markets can be so volatile,” Kramer says. Crucially, the nearer the countries were to the poles and so the shorter their winter days, the more pronounced the winter SAD effect. The results in the southern hemisphere (Australia, New Zealand and South Africa) were six months out of phase with the northern hemisphere, mirroring the seasons. Returns were at their lowest in September, rising throughout autumn and peaking just after the winter solstice (late December) before falling again and flattening out over spring and summer. “People are not often aware that their mood can play into this, but the evidence is pouring in,” she says.Īn earlier 2003 study by the same US and Canadian authors who identified seasonal investing behaviour also linked seasonal preferences for different investment types to SAD.Ĭomparing stock market index data from countries at various latitudes with their seasonal daylight fluctuations, the researchers found a so-called "SAD effect" in the seasonal cycle of stock returns that was "both significant and substantial". She points to seasonal affective disorder – SAD – and how long, cold, dark winters can make people less optimistic about investing. She’s found evidence that there is indeed a seasonal effect on people’s investing habits. Lisa Kramer is a professor of finance at the University of Toronto who studies human behaviour and investing. Some economists argue that fluctuating temperatures, day length and sunlight levels over the course of the year can sway investor behaviour and so move markets. The origin of this seasonal mood cycle may lie in the seasons themselves. They found increased optimism in the first half of the calendar year, yielding to pessimism in the second half. In a paper published in 2014, two Japanese researchers used a text-mining technique to analyse the mood of newspaper articles between 19.
This springtime bullishness even spills over into the financial media. So, what gives? Is one time of year better than the other to invest? The effect may be caused by seasonal fluctuations in optimism among investors.īut there are other adages that suggest investing in other times of the year, like the “January effect” – an increase in stock prices during the first month of the year – or December’s “Santa Claus rally”, a similar boost that has been linked to holiday-season optimism (and Christmas bonuses). The paper noted evidence for it in the UK stretching back to 1694. There is a good deal of truth to this. Findings from a 2002 paper showed that this pattern held true in 36 of 37 developed and emerging markets studied globally, and was particularly strong in Europe. It’s sometimes also called the "Halloween indicator". According to the saying, you should sell stocks in spring, just before the summer lull, and buy them in autumn, just before their value rises again. "Sell in May and go away" is an age-old investment adage, referring to the traditional belief that stocks show weaker performance in the summer, from May to October, and stronger performance in the winter, from November to April.
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