A THE ASSOCIATION BETWEEN DEPRESSION AND ANXIETY, AND STOCK MARKET INVESTMENTS IN THE UNITED STATES

DEPRESSION AND ANXIETY, AND STOCK MARKET INVESTMENTS

Abstract

Objective: Stock market investors face a higher risk of anxiety and depression than that of the investors of other assets because they are exposed to uncertainty of significant price fluctuations which results in severe losses or gains. The objective of this paper is to examine whether there is an association between depression and anxiety, and stock market investments in the United States.

 Method: The average Google search volume for fifty search terms on depression and anxiety is considered as the proxy for depression and anxiety affected investors searching for information. Fama-French common risk-factor regression with dummy variables is used to understand the association between depression and anxiety, and stock market investments under different market conditions. The population of this study consists of all users of Google search engine in the United States. 

Results:  The results show that depression and anxiety as proxied by search volume is positively and significantly associated with stock market returns. The relationship is also significant when investors gain in the current period after making losses in the previous period. The association (positive) between depression and anxiety and, stock market investments is more pronounced during up-trending markets. However, the association (negative) between stock market investments and the depression and anxiety becomes significant as depression and anxiety reduces when the investors’ return increases in a neutral market and it increases when the investors’ return is less than or equal to the risk-free rate.

Conclusion:  Unless properly addressed, by making available investor education and counseling, depression and anxiety among investors may lead to severe economic consequences. It may also lead to a series of unhealthy and risky coping strategies to deal with regard to stock market investments under market conditions (e.g. declines to rising). Since the extent of exposure to depression and anxiety differs gratefully between bull and neutral market conditions, timing is of utmost importance for investor education and counseling programs in policymaking.