The daylight saving effect argues that sleep disruption caused by daylight saving time changes results in a negative impact on stock returns on the trading day following the changes.
Even if the effect does exist it’s unlikely to be economically significant, but it is interesting to academics in the context of behavioral finance and whether external factors (such as the weather) can influence the mood of investors sufficiently to affect share returns.
Compared to other market anomalies this is a pretty straight-forward one; the academic debate has largely centered around methodology.
This article presents a brief review and listing of academic papers on the daylight saving effect.
An academic paper in 1976 found that transitions to and from daylight saving time (DST) caused sleep desynchronosis (disruptions). One paper described it as having an effect similar to jet lag. In 1980 a paper claimed that DST changes led to an increase in traffic accidents; while another paper a little later claimed it led to a decrease in accidents. Oh well.
As far as we’re concerned the story starts in 2000 when Kamstra, Kramer and Levi found that in the US, UK, Canada and Germany DST had a negative impact on stock returns on the trading day following the changes. They called this the daylight saving anomaly. A new anomaly – this was quite exciting, nowadays there aren’t that many new anomalies found in stock markets (certainly not in developed markets).
Anyway, this got the ball rolling.
Unfortunately not many others agreed with them. First up was Pinegar (2002) who looked at the US market and only found significance for the autumn DST changes, and that that was attributable to two data outliers for the market in October 1987 and October 1997. Kamstra, Kramer and Levi (2002) replied quickly to this maintaining their claims by showing that the distribution of returns on days following DST changes shifted to the left.
Next up was Worthington (2003) who found no effect in the Australian market. Lamb, Zuber and Gandar (2004) replicated and agreed with the findings of Pinegar (2002) and aggressively concluded that the original findings of Kamstra, Kramer and Levi (2000) “did not survive serious scrutiny”.
The disagreements continued with Müller, Schiereck, Simpson and Voigt (2009) who found no daylight saving effect in European bond and equity markets.
Gerlach (2010) had a different slant, claiming that any correlation between stock returns and DST changes was not due to the daylight saving effect but rather to seasonal patterns in market-related information.
Gregory-Allen, Jacobsen and Marquering (2010) criticized the original paper for using too little data; and crunched the numbers on 22 markets and over a longer period. They found no evidence of an observable DST effect on stock returns.
Berument, Dogan and Onar (2010) widened the study to look at volatility as well as stock returns, and found no DST effect. This started a merry game of paper ping-pong with Kamstra, Kramer and Levi (2010) replying with a “comment” that criticized the analysis of Berument, Dogan and Onar (2010) and maintaining the effect was still in place. Berument and Dogan (2011) replied with a “reply”, effectively saying, “isn’t”. Which prompted Kamstra, Kramer and Levi (2013) to reply with a “rebuttal” to the “reply” to the “comment” effectively saying, “is”.
INDEX (of papers listed below)
[Papers listed in reverse date order; ♠ indicates major paper.]
- Effects of daylight-saving time changes on stock market returns and stock market volatility: rebuttal 
- Does Mood Affect Trading Behavior? 
- A reexamination of the effect of daylight saving time changes on U.S. stock returns 
- Effects of daylight saving time changes on stock market volatility: a reply 
- The Daylight Saving Time Anomaly in Stock Returns: Fact or Fiction? 
- Effects of daylight-saving time changes on stock market volatility: a comment 
- Daylight and investor sentiment: a second look at two stock market behavioral anomalies 
- Effects of daylight savings time changes on stock market volatility 
- Daylight saving effect 
- Robust global mood influences in equity pricing  ♠
- Do Daylight-Saving Time Adjustments Really Impact Stock Returns? 
- Weather, Biorhythms and Stock Returns – Some Preliminary Irish Evidence  ♠
- Don’t lose sleep on it: a re-examination of the daylight savings time anomaly 
- Losing sleep at the market: an empirical note on the daylight saving anomaly in Australia 
- Losing Sleep at the Market: The Daylight Saving Anomaly: Reply  ♠
- Losing Sleep at the Market: Comment 
- Losing Sleep at the Market: The Daylight-Savings Anomaly  ♠
Effects of daylight-saving time changes on stock market returns and stock market volatility: rebuttal
Authors [Year]: Mark J. Kamstra and Lisa A. Kramer and Maurice D. Levi 
Journal [Citations]: Psychological Reports, 112(1), pp89-99
Abstract: In a 2011 reply to our 2010 comment in this journal, Berument and Dogen maintained their challenge to the existence of the negative daylight-saving effect in stock returns reported by Kamstra, Kramer, and Levi in 2000. Unfortunately, in their reply, Berument and Dogen ignored all of the points raised in the comment, failing even to cite the Kamstra, et al. comment. Berument and Dogen continued to use inappropriate estimation techniques, over-parameterized models, and low-power tests and perhaps most surprisingly even failed to replicate results they themselves reported in their previous paper, written by Berument, Dogen, and Onar in 2010. The findings reported by Berument and Dogen, as well as by Berument, Dogen, and Onar, are neither well-supported nor well-reasoned. We maintain our original objections to their analysis, highlight new serious empirical and theoretical problems, and emphasize that there remains statistically significant evidence of an economically large negative daylight-saving effect in U.S. stock returns. The issues raised in this rebuttal extend beyond the daylight-saving effect itself, touching on methodological points that arise more generally when deciding how to model financial returns data.