What is... | March 26, 2013

What is the daylight saving anomaly?

It can be difficult to get out of bed on the Monday after the clocks go forward for the start of daylight saving. Some claim the loss of sleep can also drag down share markets – in what is known as the daylight saving anomaly.

The quirk is part of a family of “calendar effects” in financial markets. However, there is contrary research that questions if the anomaly exists.

Early to rise
Daylight saving time – or British summer time in the United Kingdom and zomertijd in Dutch – is when the clocks go forward by an hour in spring. In research titled The Daylight-Savings Anomaly published in 1999, academics Mark Kamstra, Lisa Kramer and Maurice Levi studied price movements in financial markets indices in the United States, Canada, the United Kingdom and Germany. The trio concluded that the average Friday to Monday fall on daylight saving weekends is about 200-to-500-percent larger than the fall typically recorded on other weekends in the year. They suggest disruption of sleep from daylight saving time changes (both in spring and autumn) may impact markets internationally.

A fresh look
However, a later 2003 study of Australian share markets found no difference in returns at the start or end of daylight saving. Further research in 2009 of European markets also question the existence of the daylight saving anomaly.

Throughout the year…
The daylight savings anomaly is an example of a “calendar effect” – similar to the January effect, the weekend effect and others. They typically argue that patterns of behaviour produce predictable movements in some asset prices. However, as the cases for and against the daylight saving anomaly demonstrate, the existence of these calendar effects are cause for debate. An extra twist is that markets adapt, an idea explained by MIT’s Andrew Lo. And this means that sometimes the chance to make money does emerge but that as people exploit this chance (such as buying shares if they expect prices to be down as daylight saving starts) it often disappears.


eZonomics team
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