The Impact of Seasonal Affective Disorder on Financial Analysts and Equity Market Returns

Abstract

We examine three related issues on the impact of seasonal affective disorder (SAD) on financial markets. First, we hypothesize and find that analysts are more pessimistic in the fall season, as indicated by their earnings forecasts and forecast revisions. Second, we show that equity returns fail to anticipate the downward impact of SAD on forecast revisions. Finally, we find that firms with analyst revisions in the fall experience less negative abnormal returns during the fall, compared with those without analyst revisions. Overall, the evidence suggests that both analysts and equity investors are affected by SAD, but forecasts by analysts helps to mitigate the depressing effects of SAD.

Keywords: Seasonal Affective Disorder, analyst forecasts, market efficiency

JEL Classification: G11, G12, G14, G29, M41