Does the Croatian Stock Market Have Seasonal Affective Disorder?

This paper explores mood anomalies, specifically the seasonal affective disorder (SAD) effect on the Zagreb Stock Exchange (ZSE). SAD is defined as a syndrome of depressive episodes in human behavior due to the changing of the season. Thus, the motive of this research is to gain better insights into the investors’ sentiment regarding SAD effects. The purpose of the research is to observe how investors’ sentiment affects the return and risk series on ZSE and if this could be exploitable. Using daily data on stock market return CROBEX for the period January 2010—February 2021, SAD effects are tested to explore if seasonal changes affect the stock returns and risk. Besides the SAD variable in the model, some control variables are included as well: Monday, tax, and COVID-19 effect. The results indicate that SAD effects exist on ZSE, even with controlling for mentioned effects; and asymmetries around winter solstice exist. Implications of such findings can be found in simulating trading strategies, which could incorporate such information to gain profits. Limitations of the research focus on one market, observing static parameters of the estimated models, and observing simple trading strategies. Thus, future research should focus on international diversification possibilities, time-varying models, and fully exploring the exploitation possibilities of such findings.