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14.11.19 14 EUROPE ANTONIOS SIGANOS A number of studies show that daylight savings time harms people's decision making processes due to the distur- bance it has on their circadian rhythm or body clock. For example, research finds that peo- ple experience more pronounced mood swings shortly after daylight saving time ends. After daylight saving time is intro- duced there are more car accidents and more people tend to experience health complications. It turns out that the clock change can also have an effect on financial markets. In my research I've found that investor decision making is affected following clock changes. Looking at the stock performance of companies targeted for mergers in the wake of the merger being announced, I found that stocks in these companies on average went up more than normal and were more volatile the first trading day after clock changes. After all, even professional investors are human and daylight saving time influences their decisions as much as anyone else's, regardless of their quali- fications and experience. Daylight saving time is used by a num- ber of countries including the US, UK and across Europe. Here the clocks are moved forward by an hour at the start of spring to increase the amount of sun- light in the evenings. ey are then put back again ahead of winter, increasing the amount of sun- light in the mornings and causing sun- set to take place earlier. e one hour time difference seems to have a surprisingly large effect on peo- ple's sleep patterns and behaviour, as a result. Mood swings, risk taking To explore the effect on financial mar- kets, I studied the stock returns of more than 5,500 firms targeted for mergers between 1977 and November 2017 in the US – 90 of these mergers were an- nounced on a Monday after or over the weekend of a daylight saving time change. I looked at mergers because these are typically unexpected events – hence there is generally significant inves- tor reaction to these announcements. Leaks and rumours were controlled for, as well as a number of other factors like company size. When a merger is announced, the target firm experiences, on average, returns of 10% on the announcement. is is because a merger is generally good news for their shareholders. But when a merger is announced over a weekend or on a Monday following daylight saving time, the average stock return went up by around 2.50% more in relation to announcements that took place on other days – a statistically sig- nificant increase in profits for the target firms. Based on the controls, this change can be attributed to the disrupted sleep pat- terns of investors, making them overre- act to the information available to them in the short term. With plenty of evidence that investors experience relatively stronger mood swings and higher risk-taking behav- iour when their circadian rhythm is disturbed, it seems as though daylight saving time causes investors to push the stock prices of target firms to more ex- treme values. Time to scrap it? In March 2019 the European parlia- ment voted to scrap daylight savings time. e motion seemed to have wide- spread support – it passed by 410 votes to 192 and 84% of the 4.6m responses to its survey on the matter were in fa- vour of the move. But a vocal minority oppose the change, including the UK's Conservative government. ese results add to this debate sur- rounding the usefulness of daylight sav- ing time and whether or not it should be scrapped. As well as being bad for peo- ple's health, it seems the clock change also has an undue effect on financial markets. My study also shows how even mod- erate changes in sleep patterns can influence investment decisions. Our individual sleep patterns may vary a lot more than just one hour on a daily basis, which raises concerns about how our sleep may influence our decision making. Of course, this is especially impor- tant for investment professionals. e development of sleep hygiene courses, the availability of flexible working hours to match people's sleep preferences (whether you're a night owl or an early bird), and the installation of high grade lighting and sleep pods in offices are some of the ways firms can take steps to improve sleep for their staff. How daylight saving time can mess with financial markets

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