Rotman Management — Spring 2017

94 / Rotman Management Spring 2017

How prevalent is this effect?

Roughly 10 per cent of the global population suffers from se-

vere SAD, but this varies by latitude. People who live in tropi-

cal zones are less likely to be affected than those who live, for

instance, in parts of Scandinavia — some of which get only

six hours of sunlight per day in late December.

My former Rotman colleague Mark Weber and I con-

ducted a survey of faculty and staff at a large North Ameri-

can university, and we found similar results. What surprised

us was that the other 90 per cent or so of our sample also ex-

perienced significant variation in mood across the seasons

— but less severely. It turns out that most of us become more

despondent in the darker seasons of the year; but a fraction

of us become so depressed that we need medical help.

In one recent study, you looked at how mutual fund hold-

ings are affected by these seasonal factors. Tell us what

you found.

We considered how much money investors put into and

take out of their mutual funds in various months, and again,

we found strong evidence that seasonality is a key factor.

In your research, you have found that investor risk appe-

tites 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 Season-

al Affective Disorder (SAD), which causes severe depression

in a significant part of the population.

Early in my career, I was intrigued by the possible im-

plications of this disorder on financial decision making.

Findings from Psychology had long shown that when peo-

ple 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 riski-

er assets like stocks; and when it becomes more plentiful, in

the spring, they jump back into these holdings. In short, our

moods and preferences vary seasonally, and this spills over

into our financial decision making.

How Your Mood Affects

Your Investments

FACULTY FOCUS Lisa Kramer, Professor of Finance, University of Toronto Mississauga

Interview by Karen Christensen