Mark Kamstra, Lisa Kramer, and Maurice Levi
Working Paper 2002-13a
Revised October 2003

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This paper investigates 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, we provide international evidence that stock market returns vary seasonally with the length of the day, a result we 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.

JEL classification: G1

Key words: stock returns, seasonality, behavioral finance, seasonal affective disorder, SAD, depression

Published in the American Economic Review, March 2003

The authors have benefited from the suggestions of Ben Bernanke, Stanley Coren, Rick Green, Steven Jones, Andrew Karolyi, George Kramer, Tim Loughran, Raj Mehra, Jacob Sagi, Bob Shiller, Dick Thaler, participants at the meetings of the American Finance Association, the Canadian Econometrics Study Group, the Canadian Economics Association, the Scottish Institute for Research in Investment and Finance, and seminar participants at the following universities: Guelph, Manchester/UMIST, McMaster, Montreal, Notre Dame, San Francisco, Toronto, Wilfrid Laurier, and York. The authors gratefully acknowledge financial support of the Social Sciences and Humanities Research Council of Canada and the research assistance of Andy Bunkanwanicha and Yang Wu. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Mark Kamstra, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta Georgia 30309, 404-498-7094, 404-498-8810 (fax),; Lisa Kramer, Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario, M5S 3E6, Canada, 416-978-2496, , 416-971-3048 (fax),; or Maurice Levi, Faculty of Commerce and Business Administration, University of British Columbia, 2053 Main Mall, Vancouver, British Columbia, V6T 1Z2, Canada, 604-822-8260, 604-822-4695 (fax),