Abnormal Returns After Switches to/from Daylight Saving Time?

Do sleep disruptions from switches between standard time and daylight saving time reliably affect the return on the next trading day? In their September 2009 paper entitled “The Daylight Saving Time Anomaly in Stock Returns: Fact or Fiction?”, Russell Gregory-Allen, Ben Jacobsen and Wessel Marquering revisit this question based on a much larger sample than used in prior studies. Using daily returns of stock market indexes around switches to/from daylight saving time for 22 countries around the world spanning 1966-2005 (1,150 switches, tilted toward later decades), they conclude that:

• Results from the 22 stock markets offer no convincing evidence of a daylight saving time effect. The range of country returns on the day after switches suggests random variation.
• This conclusion holds after controlling for weekend effects, the month during which time switch occurs and the 1987/1997 market crashes.

In summary, evidence from a broad international test indicates that switches to/from daylight savings time have no reliable effect on short-term stock returns.

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