How Your Mood Affects Your Investments

In your research, you have found that investor risk appetites vary by season. How so?

As daylight becomes less abundant in the fall and winter months, our moods respond accordingly. Many people can identify with the notion of ‘winter blues’; but at a more clinical level, psychologists have identified a condition called Seasonal Affective Disorder (SAD), which causes severe depression in a significant part of the population.

Early in my career, I was intrigued by the possible implications of this disorder on financial decision making. Findings from Psychology had long shown that when people are in a negative mood, they become more risk averse, and combined with my finance perspective, this all seemed to be part of the same big picture. My colleagues and I were able to show that, as daylight diminishes, people shun riskier assets like stocks; and when it becomes more plentiful, in the spring, they jump back into these holdings. In short, our moods and preferences