LET’S MAKE SOME PROFITS ON SEASONAL DEPRESSION ON THE STOCK MARKET

This paper observes the possibilities of exploiting a behavioural anomaly on the stock market. Previous literature confirms the existence of Seasonal Affective Disorder (SAD) in return series on the Zagreb Stock Exchange. However, a comprehensive set of investment guidance based on such findings is lacking in the related literature. That is why after the confirmation of the existence of SAD effects in this research, the focus is on simulation of trading strategies that take such information into account. The results indicate that there exist SAD and fall effects on the Croatian stock market, alongside precipitation and temperature having significant effects on stock returns as well. Based on daily data ranging from January 2010 until December 2020 for the Croatian stock market index CROBEX, several strategies are observed and compared via performance measures aimed at beating the market. Even with the inclusion of transaction costs, it is shown and commented on possibilities for speculators aiming to obtain extra profits in certain situations. Simpler strategies are considered in the study. However, they provide a starting point for future strategies that combine different (mostly calendar) anomalies with the SAD anomaly. This is due to showing that SAD-driven investors who aim to apply the contrarian strategies against the herd can obtain profits due to the changing risk-aversion of others over the year.