Are investors no longer SAD? The Seasonal Affective Disorder anomaly revisited

Abstract

An influential paper by Kamstra et al. (2003) showed that seasonal affective disorder (SAD) can be used to explain seasonal patterns in stock returns. This thesis extends the original study by testing whether the anomaly still exists in the 21st century. The hypothesis is tested with OLS regressions for 12 indices from 8 different countries around the world. The full sample was divided into a recent and historical subsample to enable both replicating earlier findings and examining the effect distinctively in the 21st century. The results showed that while a significant SAD effect can be found in the historical sample, the anomaly appears to have disappeared from the stock market. These results imply that arbitrageurs may have corrected the mispricing associated with SAD or perhaps the anomaly was merely a statistical coincidence. Nevertheless, the findings of this study yield important implications for future research on SAD in the stock market.