Working Paper: NBER ID: w24676
Authors: David Hirshleifer; Danling Jiang; Yuting Meng
Abstract: Existing research has documented cross-sectional seasonality of stock returns—the periodic outperformance of certain stocks during the same calendar months or weekdays. A model in which assets differ in their sensitivities to investor mood explains these effects and implies other seasonal patterns. We find that relative performance across individual stocks or stock portfolios during past high or low mood months and weekdays tends to recur/reverse in periods with congruent/noncongruent mood. Furthermore, assets with higher sensitivities to aggregate mood—higher mood betas— subsequently earn higher/lower returns during high/low mood periods, including those induced by Daylight Saving Time changes, weather conditions and anticipation of major holidays.
Keywords: Investor Mood; Stock Returns; Mood Betas; Seasonalities
JEL Codes: D53; D91; G12; G14; G4; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asset A outperforms asset B during high mood months (G41) | asset A underperforms asset B in subsequent low mood months (G41) |
| congruent mood states (C62) | relative performance recurrence (C59) |
| noncongruent mood states (C62) | relative performance reversal (L25) |
| investor mood (G40) | stock returns (G12) |
| high mood (E32) | higher stock returns (G17) |
| low mood (E66) | lower stock returns (G17) |
| mood betas (C46) | stock performance (G12) |
| high mood months (E32) | higher average returns (G11) |
| low mood months (E66) | lower average returns (G19) |