Human Psychology and Market Seasonality

This is the peer reviewed version of the following article: Human Psychology and Market Seasonality, which has been published in final form at https://doi.org/10.1002/9781118813454.ch20. This article may be used for non-commercial purposes in accordance This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.Evidence suggests that human psychology plays a role in individuals’ financial decisions, with economically meaningful consequences observed even at the aggregate market level. This chapter considers many instances whereby human mood induced by exogenous factors is associated with economically large, statistically significant effects in financial markets. Some regularities covered by this chapter arise due to environmental factors. For instance, a relationship appears between length of day and stock returns, working through seasonal changes in depression and risk aversion. This chapter also considers financial market regularities that are consistent with mood changes due to events in the news, such as terrorist attacks, and forms of entertainment such as sporting events. In most cases, authors of the original studies apply extensive robustness checks to explore alternate hypotheses, namely that the phenomenon may arise for non-psychological reasons. The body of research builds a compelling case that human mood can markedly affect markets