Does the Croatian Stock Market Have Seasonal Affective Disorder?

Abstract

This paper explores mood anomalies, specifically the seasonal affective disorder (SAD) effect on the Zagreb Stock Exchange (ZSE). SAD is defined as a syndrome of depressive episodes in human behavior due to the changing of the season. Thus, the motive of this research is to gain better insights into the investors’ sentiment regarding SAD effects. The purpose of the research is to observe how investors’ sentiment affects the return and risk series on ZSE and if this could be exploitable. Using daily data on stock market return CROBEX for the period January 2010—February 2021, SAD effects are tested to explore if seasonal changes affect the stock returns and risk. Besides the SAD variable in the model, some control variables are included as well: Monday, tax, and COVID-19 effect. The results indicate that SAD effects exist on ZSE, even with controlling for mentioned effects; and asymmetries around winter solstice exist. Implications of such findings can be found in simulating trading strategies, which could incorporate such information to gain profits. Limitations of the research focus on one market, observing static parameters of the estimated models, and observing simple trading strategies. Thus, future research should focus on international diversification possibilities, time-varying models, and fully exploring the exploitation possibilities of such findings.

Borsa İstanbul’da Mevsimsel Duygulanım Bozukluğu

“…Moreover, Thach et al (2019) and Skrinjarić et al (2021) examined the SAD on the Vietnam and Croatia stock markets, respectively, and they found significant results in both markets.…”

“…However, behavioral finance implies that investors' optimism and pessimism levels may have a major impact on the financial markets, supporting the likelihood that SAD will have a large impact. In light of these arguments, many studies examined the effect of SAD on various stock market returns (i.e., Gerlach, 2010;Raut and Kumar, 2020;Ruan et al, 2018;Skrinjarić, 2018;Skrinjarić et al, 2021). However, to the author's knowledge, the SAD effect has previously been studied for the Turkish stock exchange only in a multi-country context, and the findings are not particularly clear.…”

“…Third, following Kamstra et al (2003) some control variables such as the autumn effect, tax-loss selling effect, and Monday effect are included in the model. Additionally, the influence of the COVID-19 epidemic is also controlled following Skrinjarić et al (2021).…”

“…Lastly, in addition to these control variables, followingSkrinjarić et al (2021), the influence of the COVID-19 pandemic is also controlled by employing a dummy variable which is equal to 1 starting from 11 March 2020 to 17 May 2021. These dates were chosen specifically because the World Health Organization officially designated the COVID-19 outbreak as a global pandemic on March 11, 2020, and Turkiye began to stretch restrictions toward the pandemic on 17 May 2021 1 .…”