Mood Beta and Seasonalities in Stock Returns
60 Pages Posted: 7 Dec 2016 Last revised: 26 Mar 2018
Date Written: March 20, 2018
Existing research has documented cross-sectional seasonality of stock returns—the periodic outperformance of certain stocks during calendar month, weekday, or pre-holiday periods. A model in which stocks differ in their sensitivities to investor mood explains these effects and implies other seasonal patterns. We find that relative performance across stocks during past high or low mood months and weekdays tends to recur/reverse in periods with congruent/non-congruent mood. Furthermore, stocks with higher sensitivities to aggregate mood—higher mood betas—subsequently earn higher/lower returns during high/low mood periods, including those induced by Daylight Saving Time changes, weather conditions and anticipation of major holidays.
Keywords: Return Seasonality, Investor Mood, Mood Beta, Weather, Daylight Saving Time, Preholiday
JEL Classification: G02, G11, G12, G14
Suggested Citation: Suggested Citation