Economist John Maynard Keynes said that “animal spirits” move the markets, but maybe the sun and the clouds have something to do with it, too.

In his “General Theory of Employment, Interest and Money” Keynes wrote, “The markets are moved by animal spirits and, not by reason.” This quote, which is widely printed in economics textbooks, serves to warn students that investors are not always rational went it comes to their investment decisions.

In fact, the markets are often roiled by fear and uncertainty.

A report circulated last month by the National Bureau of Economic Research analyzes how seasonal investor sentiment affects portfolios and offers a unique explanation for a possible driving force behind those market-moving “animal spirits”.

The paper was written by three finance professors: David Hirshleifer, from University of California, Irvine, Danling Jiang from Stony Brook University and Yuting Meng from University of South Florida. They found that seasonal variation in investors’ moods can lead to both overpricing and underpricing of assets.

For instance, January, March and Friday are all considered to bring about a “high mood state” amongst investors, which is associated with high average historical returns. To test their hypothesis that seasonal mood variation influences stock returns, the authors developed a theoretical model to measure “sensitivity to investor mood variations.”

March is associated with the highest recovery from seasonal affective disorder, or SAD, and September and October are associated with the highest onset of the SAD effect. For these months, the study focuses specifically on interpreting behaviors of investors who may suffer from seasonal affective disorder, as opposed to all investors.

While it is not certain how many investors in the U.S. suffer from seasonal affective disorder (SAD), research indicates that nearly 6% of the U.S population is affected by SAD. “The general public and investors tend to suffer most from SAD during September and October,” said Jiang, who is a finance professor at Stony Brook University. Historically the lowest stock returns have occurred in September.

Coincidence? Perhaps not…

Seasonal affective disorder ebbs and flows during the year

“The winter is the time for conservation,” said Dr. Norman Rosenthal, a clinical professor of psychiatry at Georgetown University School of Medicine and author of “Winter Blues.”

“We don’t like to think of ourselves as biological beings,” he added. “We like to think of ourselves as rational, but often we are not.” For investors who have SAD, Rosenthal said this can influence projections that they make depending on the time of year.

The National Institute of Mental Health defines SAD as “a type of depression that comes and goes with the seasons, typically starting in the late fall and early winter and going away during the spring and summer.

SAD is more common among people who are further away from the equator. That’s also where you’ll find concentrations of investors: Most hedge funds in the U.S. are located in the Northeast with 51% located in the state of New York, according to data compiled by Prequin.How socially responsible investing transforms traditional portfoliosHere's how the principles of environmentally and socially conscious investing (ESG) are transforming different aspects of portfolio construction.

March optimism may result in some investors buying too high

During the month of March there is an increase in the number of hours of daylight, which for investors with SAD shifts them to a high mood state. “A high mood is associated with more optimism and more risk tolerance, which means that investors are more likely to buy stocks than sell,” said Jiang, “and they are more likely to buy them at higher prices.”

A separate study, which analyzes how SAD affects the pricing of a stock’s initial public offering, supports this conclusion. As shown in the study, companies that go public in the winter or fall were more likely to be underpriced in order to induce investment. When investor sentiment begins to positively shift in the month of March, evidence cited in the study shows that investors are not only more willing to invest but they will also be more comfortable paying higher prices.

Pessimism in September and October can lead to lower returns

By contrast, investors typically experience “low mood states” during the months of September and October, and on Mondays. According to the report, these three times are linked to low average historical returns.

As the number of daylight hours decreases in September and October, the highest onset of the SAD goes into effect. During these times, investors who experience SAD are typically more pessimistic, so as a result they seek to limit their exposure to risk by purchasing safer assets such as treasury bills and bonds and are more likely to sell stocks than buy them.

Why financial analysts may be less susceptible to SAD

Unlike investors, financial analysts are less likely to reevaluate their investment positions based upon fluctuating emotions caused by SAD, according to a 2017 report titled, “The Impact of Seasonal Affective Disorder on Financial Analysts” and published in The Accounting Review.

“Financial analysts have a system in place to do their jobs throughout the year and that doesn’t change month to month,” said Kin Lo, a co-author of the report and a professor of business studies at the University of British Columbia.

And so they are less prone to basing their investment decisions on their immediate mood. “Even if they are affected by SAD they aren’t going to ignore the buy or sell recommendation they made back in August,” he said.