Media Releases

Fall market jitters a SAD thing, suggests paper from Rotman School of Management

October 11, 2011

Toron­to, ON – It’s no sur­prise to researcher Lisa Kramer that finan­cial mar­ket dips and crash­es typ­i­cal­ly hap­pen in the fall.

Her most recent study, forth­com­ing in Social Psy­cho­log­i­cal and Per­son­al­i­ty Sci­ence,  shows that peo­ple who expe­ri­ence sea­son­al depres­sion shun finan­cial risk-tak­ing dur­ing sea­sons with dimin­ished day­light but are more will­ing to accept risk in spring and sum­mer. The work builds on pre­vi­ous stud­ies by Kramer and oth­ers, sug­gest­ing sea­son­al depres­sion may be suf­fi­cient­ly pow­er­ful to move finan­cial mar­kets.

“We’ve nev­er, until now, been able to tie a per­va­sive mar­ket-wide sea­son­al phe­nom­e­non to indi­vid­ual investors’ emo­tions,” says Prof. Kramer, who teach­es behav­iour­al finance at the Uni­ver­si­ty of Toronto’s Rot­man School of Man­age­ment. Titled, “This is Your Port­fo­lio on Win­ter,” she co-wrote the study with the Uni­ver­si­ty of Waterloo’s Mark Weber.

The researchers based their find­ings on a study of fac­ul­ty and staff at a large North Amer­i­can uni­ver­si­ty. Par­tic­i­pants were paid for each part of the study they joined, which includ­ed online sur­veys and behav­iour­al assess­ments. They also had the option of putting some or all of their pay­ment into an invest­ment with 50:50 odds and where the poten­tial gains exceed­ed the poten­tial loss­es, to mim­ic finan­cial risk. Par­tic­i­pants who expe­ri­enced sea­son­al depres­sion chose more of the guar­an­teed pay­ments and put less mon­ey at risk in win­ter, but their risk tol­er­ance came more into line with oth­er par­tic­i­pants’ in sum­mer.

About 10 per­cent of the pop­u­la­tion suf­fers from severe sea­son­al depres­sion, known as sea­son­al affec­tive dis­or­der (SAD). How­ev­er evi­dence sug­gests even those who do not suf­fer from the med­ical con­di­tion of SAD still expe­ri­ence some degree of sea­son­al fluc­tu­a­tion in mood. Pre­vi­ous research has not­ed sea­son­al pat­terns in stock mar­ket returns have been con­sis­tent with peo­ple avoid­ing risk in the 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,” says Prof. Kramer. “But increas­ing­ly we’re dis­cov­er­ing finan­cial deci­sion-mak­ing is an inher­ent­ly emo­tion­al process.”

The find­ings have impli­ca­tions for peo­ple like finan­cial plan­ners who Prof. Kramer says may need to be more sen­si­tive to sea­son­al vari­a­tion in their clients’ risk tol­er­ance. Stock traders may also ben­e­fit from under­stand­ing where their reac­tions are com­ing from when deal­ing with a bad trad­ing day.

“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 says.

The com­plete study is avail­able at:

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The Rot­man School of Man­age­ment at the Uni­ver­si­ty of Toron­to is redesign­ing busi­ness edu­ca­tion for the 21st cen­tu­ry with a cur­ricu­lum based on Inte­gra­tive Think­ing. Locat­ed in the world’s most diverse city, the Rot­man School fos­ters a new way to think that enables the design of cre­ative busi­ness solu­tions.  The School is cur­rent­ly rais­ing $200 mil­lion to ensure Cana­da has the world-class busi­ness school it deserves. For more infor­ma­tion, vis­it


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Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
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