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Winter months SAD for U.S. Treasury securities, study reveals

March 16, 2015

TORONTO, ON – The best time to invest in U.S. Trea­sury secu­ri­ties may be spring, thanks to sea­son­al vari­a­tions in investor risk tol­er­ance linked to depres­sion.

A team of finance researchers found that the month­ly return on those secu­ri­ties showed an aver­age swing of 80 basis points between Octo­ber — when returns peaked — and April, when they bot­tomed out.

“Maybe it seems like a small num­ber, but in the world of Trea­suries, that kind of a sys­tem­at­ic dif­fer­ence is huge,” says study co-author Lisa Kramer, an asso­ciate pro­fes­sor at the Uni­ver­si­ty of Toron­to Mis­sis­sauga, who is also appoint­ed to the University’s Rot­man School of Man­age­ment.

She and her fel­low researchers found that the fluc­tu­a­tion was linked to sea­son­al depres­sion, called sea­son­al affec­tive dis­or­der (SAD) in its sever­est form. That was true even after con­trol­ling for oth­er pos­si­ble expla­na­tions, such as investors using Trea­sury secu­ri­ties as a hedge against stock mar­ket volatil­i­ty, Trea­sury debt sup­ply fluc­tu­a­tions, auc­tion cycles, data min­ing, and even bad weath­er.

Med­ical evi­dence has shown that up to 10 per­cent of the pop­u­la­tion expe­ri­ences SAD and most peo­ple expe­ri­ence more depres­sive feel­ings in the fall and win­ter.

The study’s find­ing may be hard to accept, giv­en that Trea­sury mar­kets are known as places for larg­er insti­tu­tion­al investors with expe­ri­enced and sophis­ti­cat­ed advi­sors who are not influ­enced by every­day human emo­tions.  But maybe it’s time to rec­og­nize that even high-lev­el port­fo­lio man­agers are peo­ple too, says Prof. Kramer.

“Maybe they’re not clin­i­cal­ly-depressed and feel­ing the impulse to crawl back into bed,” she says, “but my own research sug­gests that they’re not as buoy­ant dur­ing some sea­sons of the year and it might not be very notice­able to an indi­vid­ual, but there do seem to be real­ly broad effects.”

Prof. Kramer co-wrote the study with Prof. Mark Kam­stra of York University’s Schulich School of Busi­ness and Prof. Mau­rice Levi of the Saud­er School of Busi­ness at the Uni­ver­si­ty of British Colum­bia.  It builds on Prof. Kramer’s pre­vi­ous work, such as her 2011 paper, “This Is Your Port­fo­lio On Win­ter,” iden­ti­fy­ing that peo­ple with SAD shun finan­cial risk-tak­ing dur­ing sea­sons with dimin­ished day­light and that this effect is strong enough to influ­ence finan­cial mar­kets.

The paper is being pub­lished in a forth­com­ing issue of Crit­i­cal Finance Review.

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Ken McGuf­fin
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Rot­man School of Man­age­ment
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