People who experience seasonal depression avoid financial risk-taking during autumn, when the days are darker, contributing to market crashes.
"We've never, until now, been able to tie a pervasive market-wide seasonal phenomenon to individual investors' emotions," says Lisa Kramer, professor in behavioural finance at the University of Toronto's Rotman School of Management.
Kramer, who led the study with Mark Weber of the University of Waterloo, based her findings on a study of faculty and staff at a large North American university. Participants were paid for each part of the study they joined, including online surveys and behavioural assessments.
They also had the option of putting some or all of their payment into an investment with 50:50 odds and where the potential gains exceeded the potential losses, to mimic financial risk, the journal Social Psychological and Personality Science reports.
Participants who experienced seasonal depression chose more of the guaranteed payments and put less money at risk in winter, but their risk tolerance came more into line with other participants' in summer, according to a Toronto statement.
About 10 percent of the population suffers from severe seasonal depression, known as seasonal affective disorder (SAD).
However, evidence suggests even those who do not suffer from SAD still experience some degree of seasonal fluctuation in mood. Previous research has noted seasonal patterns in stock market returns have been consistent with people avoiding risk in the fall and winter.
"So much common wisdom about economics and finance is built on the notion that we're very rational about making financial decisions," says Kramer. "But increasingly we're discovering financial decision-making is an inherently emotional process."
The findings have implications for financial planners, who may need to factor in seasonal variation in their clients' risk tolerance, says Kramer.
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