Chapter 20: Human Psychology and Market Seasonality

Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 25-41. Hoboken, NJ: John Wiley & Sons, Inc., 2014

Posted: 15 Feb 2014

See all articles by Lisa A. Kramer

Lisa A. Kramer

University of Toronto - Rotman School of Management

Date Written: February 1, 2014

Abstract

Evidence suggests that human psychology plays a role in individuals’ financial decisions, with economically meaningful consequences observed even at the aggregate market level. This chapter considers many instances whereby human mood induced by exogenous factors is associated with economically large, statistically significant effects in financial markets. Some regularities covered by this chapter arise due to environmental factors. For instance, a relationship appears between length of day and stock returns, working through seasonal changes in depression and risk aversion. This chapter also considers financial market regularities that are consistent with mood changes due to events in the news, such as terrorist attacks, and forms of entertainment such as sporting events. In most cases, authors of the original studies apply extensive robustness checks to explore alternate hypotheses, namely that the phenomenon may arise for non-psychological reasons. The body of research builds a compelling case that human mood can markedly affect markets.

Keywords: anomalies, emotions, financial decisions, market seasonality, mood, sentiment

JEL Classification: A12, D1, D81, E21, E32, E44, G11, G12

Suggested Citation

Kramer, Lisa A., Chapter 20: Human Psychology and Market Seasonality (February 1, 2014). Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 25-41. Hoboken, NJ: John Wiley & Sons, Inc., 2014. Available at SSRN: https://ssrn.com/abstract=2396049

Lisa A. Kramer (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-2496 (Phone)
416-971-3048 (Fax)

HOME PAGE: http://www.chass.utoronto.ca/~lkramer

Register to save articles to
your library

Register

Paper statistics

Abstract Views
5,256
PlumX Metrics