Sunny days take risk out of investors' decisions

Sunshine makes people happy and happy people make less risky investment decisions, a Deakin University researcher has found.

Using data from Germany and the Netherlands, Dr Cahit Guven, an expert in behavioural economics and wellbeing, examined the connection between the weather, people's self-reported wellbeing and their economic choices.

People face various economic choices in their lives,'' he explained.

Economists are interested in the decisions people make about the way they allocate their investments across various portfolios and how this matches with the behaviour. Most of the choices we make in daily life are related to risk-taking be it investment, consumption, saving, moving, smoking and driving.

Dr Guven said past researchers had noticed the relationship between morning sunshine and the performance of markets on the stock exchange, including that in Australia. Other researchers have demonstrated a link between the feelings of depression experienced by sufferers of Seasonal Affective Disorder (SAD) with seasonal variations in stock returns.

Most of these studies have looked at macroeconomic variables whereas we set out to look at how the weather influences individual's mood and their financial risk taking behaviour, he said.

Dr Guven's research linked the data on wellbeing with weather data identifying increases in regional sunshine with increased happiness.

Happy people expected to have a longer life and were more concerned about the future than about the present, he said. Interestingly they also expect less inflation.

Our research showed that happy people were more likely to have life insurance, savings accounts and operating assets but were less likely to invest in shares as they found them too risky.

This may be due to the fact that happy people like to take time to make decisions and have more self-control.

Happy people also use internet banking and phone banking less frequently and prefer to use bank branches rather than ATMs.

Dr Guven said conversely, unhappy people were less forward looking and more concerned about the immediate consequences of their actions.

Unhappy people find controlling their finances very difficult and they also do not have control over their investments.