Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Mood Beta and Seasonalities in Stock Returns

Last Updated on 10 February, 2024 by Rejaul Karim

The “Mood Beta and Seasonalities in Stock Returns” study published in the Journal of Financial Economics delves into the intriguing realm of seasonal stock return patterns. Authored by David A. Hirshleifer, Danling Jiang, and Yuting Meng DiGiovanni, the research challenges conventional wisdom by proposing a connection between assets’ sensitivities to investor mood and the observed cross-sectional seasonality of stock returns.

The study posits that assets’ varying responses to investor mood drive recurring relative performance across individual stocks or portfolios during periods of congruent or non-congruent mood.

Moreover, the investigation highlights that assets with higher sensitivities to aggregate mood—referred to as “mood betas”—tend to yield different returns during ascending and descending mood periods.

This innovative research offers thought-provoking insights into the interplay between investor mood, seasonalities, and stock returns, paving the way for an enriched understanding of market efficiency and anomalies.

Abstract Of Paper

Existing research has documented cross-sectional seasonality of stock returns—the periodic outperformance of certain stocks during the same calendar months or weekdays. We hypothesize that assets’ different sensitivities to investor mood explain these effects and imply other seasonalities. Consistent with our hypotheses, relative performance across individual stocks or stock portfolios during past high or low mood months and weekdays tends to recur in periods with congruent mood and reverse in periods with noncongruent mood. Furthermore, assets with higher sensitivities to aggregate mood—higher mood betas—subsequently earn higher returns during ascending mood periods and lower returns during descending mood periods.

Original paper – Download PDF

Here you can download the PDF and original paper of Mood Beta and Seasonalities in Stock Returns.

(An option to download will come shortly)

Author

David A. Hirshleifer
Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Danling Jiang
College of Business, Stony Brook University

Yuting Meng DiGiovanni
University of South Florida – Department of Finance

Conclusion

In conclusion, the groundbreaking study “Mood Beta and Seasonalities in Stock Returns” by David A. Hirshleifer, Danling Jiang, and Yuting Meng DiGiovanni elucidates the captivating relationship between investor mood and the observed cross-sectional seasonality of stock returns.

By illustrating how assets’ varying sensitivities to investor mood explain and manifest in recurrent relative performance during high or low mood periods, the research challenges traditional notions of market predictability.

The study’s identification of higher mood betas associated with correspondingly higher or lower returns during ascending and descending mood periods unveils a compelling dimension of seasonalities in stock returns.

These findings not only augment our comprehension of investor behavior and market efficiencies but also open new avenues for exploring anomalies and enhancing predictive models in the domain of finance.

Related Reading:

Deep Value

Value Return Predictability Across Asset Classes and Commonalities in Risk Premia

FAQ

What is the main focus of the research paper “Mood Beta and Seasonalities in Stock Returns”?

The main focus of the research paper is to explore the connection between assets’ sensitivities to investor mood, referred to as “mood betas,” and the observed cross-sectional seasonality of stock returns. The study investigates how assets’ responses to investor mood contribute to recurring relative performance across individual stocks or portfolios during periods of congruent or non-congruent mood.

How does the study explain the observed cross-sectional seasonality of stock returns?

The study posits that assets’ varying sensitivities to investor mood play a crucial role in explaining cross-sectional seasonality. Relative performance across individual stocks or stock portfolios during past high or low mood months and weekdays tends to recur in periods with congruent mood and reverse in periods with noncongruent mood. The research suggests that mood betas influence the seasonal patterns observed in stock returns.

What are “mood betas,” and how do they relate to stock returns during ascending and descending mood periods?

“Mood betas” refer to assets’ sensitivities to aggregate mood. The study finds that assets with higher mood betas—higher sensitivities to aggregate mood—subsequently earn higher returns during ascending mood periods and lower returns during descending mood periods. This implies that the influence of mood on stock returns is not uniform across all assets, and assets’ responses to mood variations contribute to seasonalities in returns.

Find A Comprehensive Database of Research Papers On Trading Strategies here

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password