Seasonality in Equilibrium Stock Returns: A Dynamic Perspective on Sad

Diao, Xifeng; Levi, Maurice D.

doi:10.2139/ssrn.567762

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Seasonality in Equilibrium Stock Returns: A Dynamic Perspective on Sad

Sauder School of Business Working Paper

34 Pages Posted: 24 Jul 2004

See all articles by Xifeng Diao

Xifeng Diao

University of Calgary - Haskayne School of Business

Maurice D. Levi

University of British Columbia (UBC) - Sauder School of Business

Date Written: July 2004

Abstract

Recent research has investigated the role of depression induced by seasonal affective disorder, SAD, for stock market returns. This paper extends this enquiry by developing the implications of SAD in a continuous-time equilibrium-return framework with time-varying risk aversion. This approach identifies three ways by which SAD can affect returns. Quarterly and daily returns data on CRSP overall market returns, and on different size and risk portfolios, strongly support the implications of SAD in this dynamic equilibrium setting. For example, stock market returns decrease monotonically from quarter 1 to quarter 4, with the decrease larger for smaller/riskier firms.

Keywords: Seasonality, Asset Pricing, Behavioral Finance, Daylight Stock Return Cycle

JEL Classification: G00

Suggested Citation: Suggested Citation

Diao, Xifeng and Levi, Maurice David, Seasonality in Equilibrium Stock Returns: A Dynamic Perspective on Sad (July 2004). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=567762 or http://dx.doi.org/10.2139/ssrn.567762