52 Pages Posted: 7 Dec 2016 Last revised: 14 Jan 2017
Date Written: January 12, 2017
Existing research has documented cross-sectional seasonality of stock returns – the periodic outperformance of certain stocks relative to others during the same calendar month, weekday, or pre-holiday periods. A model based on the differential sensitivity of stocks to investor mood explains these effects and implies a new set of seasonal patterns. We find that relative performance across stocks during positive mood periods (e.g., January, Friday, the best-return month realized in the year, the best-return day realized in a week, pre-holiday) tends to persist in future periods with congruent mood (e.g., January, Friday, pre-holiday), and to reverse in periods with non-congruent mood (e.g., September/October, Monday, post-holiday). Stocks with higher mood betas estimated during seasonal windows of strong moods (e.g., January/September/October, Monday/Friday, pre-holidays) earn higher expected returns during future positive mood seasons but lower expected returns during future negative mood seasons, including those induced by Daylight Saving Time changes and weather conditions.
Keywords: Return Seasonality, Investor Mood, Mood Beta, Market Efficiency, Anomalies
JEL Classification: G02, G11, G12, G14
Suggested Citation: Suggested Citation
Hirshleifer, David A. and Jiang, Danling and Meng, Yuting, Mood Beta and Seasonalities in Stock Returns (January 12, 2017). Available at SSRN: https://ssrn.com/abstract=2880257