Insights from “Inside the Investor’s Brain” by Richard L. Peterson
When it comes to investing, many assume that logic and data drive decisions. However, research has shown that weather conditions, daylight, and even lunar cycles have a surprising impact on investor behavior and market performance.
According to Richard L. Peterson in his book Inside the Investor’s Brain, sunshine, cloud cover, temperature changes, and geomagnetic storms all influence the mood and risk tolerance of investors — often without them even realizing it. These subtle changes in environment can lead to significant shifts in stock market returns.
For instance, a study cited in the book by David Hirshleifer analyzed 26 stock markets globally between 1982 and 1997. It found that the annualized market return on sunny days in New York City was 24.8%, compared to just 8.7% on cloudy days. The reason? Sunshine improves mood, and elevated mood reduces risk aversion, making investors more likely to buy.
Similarly, Kamstra, Kramer, and Levi (2003) found a clear seasonal pattern in returns. Their research suggested that stock markets tend to underperform in summer and outperform in winter. By strategically rotating investment between hemispheres based on daylight (e.g., investing in Sydney from March to September and Stockholm from September to March), an investor could have achieved annual returns of over 21% during 1982–2001.
More surprisingly, geomagnetic storms and poor sleep (often linked to seasonal changes or daylight saving time) were shown to correlate with market underperformance. Researchers believe that these factors contribute to lower mood and increased risk aversion.
One particularly interesting study by Yuan, Zheng, and Zhu (2001) found that stock returns were significantly higher around full moons than new moons — by as much as 6.6% annually. The theory? The light of the full moon might subconsciously enhance mood and confidence in decision-making.
In summary, even the most logical and analytical investors may unknowingly be swayed by natural forces. As Peterson notes, these environmental and biological influences operate beneath conscious awareness, yet they powerfully shape financial behavior and market trends.
