Seasonality in Perceived Risk: A Sentiment Effect
Quarterly Journal of Finance, 2017, 7(1), 1650015:1-21.
24 Pages Posted: 8 Apr 2008 Last revised: 5 Feb 2018
Date Written: April 1, 2017
Studies which attribute markets’ seasonality to sentiment assume that seasonal affective disorder (SAD) creates seasonal fluctuations in risk-aversion which, in turn, affects prices. Employing the variance risk premium (VP), we directly test for seasonality in risk-aversion. We find significant seasonality in the VP which is not explained by exogenous events, market-realized variance and returns and major macroeconomic variables. We use the number of people who actively suffer from SAD to show that consistent with the SAD hypothesis VP and SAD are significantly positively correlated. International comparison reveals significant positive association between the magnitude of seasonally and the prevalence of SAD.
Keywords: volatility risk premium, market seasonality effects, perceived risk, investor sentiment, market efficiency
JEL Classification: A12, G1, G10, G12, G14
Suggested Citation: Suggested Citation