Research shows that there are things to look out for after the clock changes
Apart from the odd mistake relating to when the US markets open and close (the US shifts its time one week after Europe), there are some other interesting things to take into consideration on the day after daylight-saving time takes place.
Many people don’t really manage to transition quickly to the new time and it can cause sleep disruption, mood changes and increased tiredness (quite similar to jet lag). These can have consequences on many aspects of our lives, but the one we’re mainly concerned with here is trading.
A study in 2000 named “Losing Sleep at the Market: The Daylight Saving Anomaly”, published in the American Economic Review, showed that the days following the shift see increased anxiety in market participants. This is a common occurrence that comes after sleep patterns are changed.
Economists and market analysts are also generally interested in anxiety, as it’s one of the conditions for so-called “risk-off” behaviour in traders. Translated into actions – an overall smaller number of trades are made and a generally more bearish stance is taken (albeit temporarily). As this is a mass event, its effects are seen in a large group of people with measurable actions.
According to the survey, stock markets from four countries saw an average loss of $31 billion for markets in the day following daylight saving. Of course a multitude of other factors are at play with prices, but it could prove to be an interesting component of the cause and effect that sees this pretty consistent drop.
The scientists that performed the study warn that traders and investors shouldn’t change anything in their behaviour after the daylight saving. Not least to determine the direction of the market solely on this study. Quite the contrary – their general advice is to limit decision-making in situations where some sort of pressure is experienced, be it physical or emotional.
So don’t forget to check your clocks on Monday morning and keep an eye on yourself for “suspiciously” uncharacteristic behaviour.
Next week we’ll be expanding on the subject with a look at sleep deprivation and trading, so stay tuned.