Mood Beta and Seasonalities in Stock Returns

52 Pages Posted: 7 Dec 2016 Last revised: 14 Jan 2017

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Danling Jiang

College of Business, Stony Brook University; School of Economics and Management, Southwest Jiaotong University

Yuting Meng

University of South Florida - Department of Finance

Date Written: January 12, 2017

Abstract

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

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

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Danling Jiang (Contact Author)

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

HOME PAGE: http://sites.google.com/site/danlingjiang

School of Economics and Management, Southwest Jiaotong University ( email )

Chengdu, Sichuan
China

HOME PAGE: http://userweb.swjtu.edu.cn/Userweb/jiangdanling/index.htm

Yuting Meng

University of South Florida - Department of Finance ( email )

Tampa, FL 33620-5500
United States

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