Sentiment and Stock Returns: The SAD Anomaly Revisited
Issue Date
2010-06Author
Meschke, Felix
Kelly, Patrick J.
Publisher
Elsevier
Type
Article
Article Version
Scholarly/refereed, author accepted manuscript
Version
http://ssrn.com/abstract=571144
Metadata
Show full item recordAbstract
Widely-cited research by Kamstra et al. (2003) argues that changes in mood resulting from Seasonal Affective Disorder (SAD) drive changes in investor risk aversion and cause seasonal patterns in aggregate stock returns around the world. In this paper we reexamine the so-called SAD effect by replicating and extending Kamstra et al. (2003). We study the psychological underpinnings of the SAD hypothesis and show that the time-series predictions of the SAD model do not correspond to the seasonal patterns in depression found in the general population. We also investigate the cross-sectional prediction that SAD has a greater effect on stock markets in countries where SAD is more prevalent and find no relation between the prevalence of SAD and stock returns. Finally, we document that the SAD effect is mechanically driven by an overlapping dummy-variable specification and higher returns around the turn of the year.
Description
NOTICE: This is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, Vol. 34, Issue 6, June 2010. DOI:10.1016/j.jbankfin.2009.11.027
ISSN
0378-4266Collections
Citation
Patrick J. Kelly, Felix Meschke, Sentiment and stock returns: The SAD anomaly revisited, Journal of Banking & Finance, Volume 34, Issue 6, June 2010, Pages 1308-1326, ISSN 0378-4266, 10.1016/j.jbankfin.2009.11.027. http://dx.doi.org/10.1016/j.jbankfin.2009.11.027
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