To the flying public, it's known simply as jet lag. To behavioral scientists, it's a malady called sleep desynchronosis. But whatever the name, researchers have found that the discomfort caused by the disruption of normal daily sleeping patterns can have profound effects on people's perceptions and behavior--fostering anxiety, impairing judgment, and even causing accidents.
Could it also affect the stock market, as anxious investors react to such symptoms? That tantalizing possibility is explored by Mark J. Kamstra and Lisa A. Kramer of Simon Fraser University and Maurice D. Levi of the University of British Columbia in the current American Economic Review.
Helping to pique the economists' curiosity was the so-called "weekend effect"--the tendency for stock prices to close lower on Monday than they did on the previous Friday. This trend, which violates the basic premise of efficient-market theory--that stock prices show no predictable pattern from day to day--has been observed in U.S., Canadian, and European stock markets.
Although there are other explanations for the weekend effect, the researchers theorized that disrupted sleeping patterns could also be a determinant. If that's the case, they figured that the impact on stocks should be especially pronounced twice each year--on the Mondays following the Sundays when the clock is adjusted by an hour to start or end daylight saving time.
To test this notion, the study looked at market patterns spanning several decades in the U.S., Canada, Britain, and Germany. Since Britain and Germany have different daylight saving dates than the U.S. and Canada, a strong weekend effect after such dates would be compelling evidence favoring their "sleep disturbance" theory.
That, in fact, was exactly what the researchers found. Despite three different daylight saving dates, stock declines were especially conspicuous on the Mondays after such dates in all four nations. Weekend effects after these time shifts were two to five times as large as the average dip after ordinary weekends.
Thus, sleep disruption may well be a major cause of the weekend effect. Even if it's only responsible for the pronounced Monday declines after daylight saving time shifts, the researchers calculate that it implies a two-day market loss of $62 billion in the U.S. alone.
For canny U.S. and Canadian investors, the lesson is clear. If you're planning to sell stocks around the end of this month, Monday, Oct. 30, may not be the best day to act. On the other hand, if you're going to buy stocks, you could pick up a bargain or two.