Part IV in our Wealth Psychology series: Professor Lisa Kramer explains how seasonal changes can affect markets, and why we may feel compelled to make more hay when the sun is shining.
Bright summer day, bright sunny mood, right? That's probably a common experience. Seasons with great weather often lift people's spirits. But behavioral economics suggests that seasons with higher than average sunny days may also make markets and investors happier. Studies have shown that investors can be influenced by things that seem completely irrelevant. And the change of season is one of them.
Consider this-- data have shown that some stocks have regularly underperformed at certain times of the year, like in the fall when the days begin to get shorter. Those same stocks were shown to go gangbusters in the spring when the days begin to get longer. Why might that be?
We often make financial decisions based on a number of external factors. In this case, it's the context of the decision, or what's happening around us, that can affect the decisions we make. The context of season can affect people's moods, drive fatigue, anxiety, and depression. And that may spill over into the choices we make with money.
As an investor, you probably shouldn't try to time trades according to the season. Trading in response to our emotions may make us worse off than if we chose to do nothing at all. Instead, you may prefer to establish a long-term investment plan that includes tactics to help ensure you don't lose sleep over your investments regardless of the season. It's perfectly natural to experience emotions in response to environment cues like the seasons. By recognizing our human nature in advance, it can help us set up strategies that put us on a path for success.