The Seasonal Affective Disorder on Oslo Stock Exchange - Investigating snow as a potential remedy to risk aversion

Abstract

In this thesis we investigate whether the Seasonal Affective Disorder (SAD) also known as Winter depression has an impact on the returns on Oslo Stock Exchange (OSE), and whether the effect SAD has on returns are influenced by snow cover in the time period 1990- 2019. We measure the effect using the OBX total return index, the OSESX small-cap index and ten sectorial indices. To measure the impact of the disorder we use both a method based on sunlight variation inspired by the paper Winter Blues: A SAD Stock Market Cycle by Kamstra, Kramer and Levi (American Economic Review, 2003), and a more modern model that is based on human behavior – the Onset/Recovery model. We find that the SAD have significantly impacted returns on some specific indices on Oslo Stock Exchange during the time period 1990-2019. We also find that snow cover seems to significantly reduce the risk aversion associated with the SAD for three out of the twelve indices we examine, one of them being the OSESX. In addition, when controlling for the interaction between snow cover and the SAD, as many as five indices react significantly to the disorder. Though only a few indices are significant, they react in accordance to the established theory of the SAD, the SAD impacting returns negatively in the fall and positively in the winter. The seasonal patterns are not likely to be caused by seasonal variations in turnover, but a GARCH(1,1) model suggest that time varying volatility could be a potential influence. Exploring various trading strategies inspired by the SAD, the OBX and OSESX indices suggests that returns with an excess of the market of around 2.5 percent to 5.6 could be made, depending on the index.