Seasonal affective disorder and investors' response to earnings news

•This article investigates whether SAD affects investors' immediate reactions to earnings announcements and post-earnings announcement drift (PEAD). To the best of my knowledge, this is the first paper to document the effect of SAD on investors' response to earnings announcements.•I found that investors' immediate reactions to earnings news around the announcement day are significantly smaller on SAD days, and those in the fall are even smaller than those in the winter. This indicates that the pessimism caused by SAD is more evident in the fall when the hours of sunlight are decreasing.•Trading volume around good earnings news announcements is relatively low in the fall. In contrast, upon good news, investors resume risky holdings and are more willing to trade with a reduction in risk aversion in tandem with the increasing hours of daylight in the winter. However, due to the ostrich effect, an insignificant difference in immediate price and volume reactions between SAD and non-SAD seasons following bad news.

We examined the relationship between seasonal affective disorder (SAD) and investor response to a firm's quarterly earnings announcements. Our results show that the market's cumulative abnormal returns are associated with unexpected earnings and with SAD. Investors respond more negatively when earnings are announced in the fall than in other seasons. We also found an asymmetric SAD effect that is more significant for positive earnings announcements, on average. Moreover, the SAD affect is most evident in stocks that are more salient to investors.