Do Falling Stock Prices Drive People Crazy?

Falling stock prices lead to increased hospitalizations for mental disorders, according to a new study in Taiwan.

Asian Scientist (Feb. 19, 2014) – Falling stock prices lead to increased hospitalizations for mental disorders, according to the first large-scale study of stock market volatility and its effect on mental disorders.

In their research, published in the journal Health Policy and Planning, the researchers assessed the relationship between stock price movements and mental disorders using data on daily hospitalizations for mental disorders in Taiwan over 4,000 days between 1998 and 2009.

Through their analysis, they found evidence that falling stock prices in the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) was associated with increases in daily hospitalizations for mental disorders:

– A 1000-point fall in the TAIEX coincided with a 4.71% increase in hospitalizations.

– When the stock price index decreased by 1% in a single day there was a 0.36% increase in hospitalizations on that same day.

– Falls in stock price index on consecutive days were associated with a 0.32% daily increase in hospitalizations.

– When the stock price index fell consecutively for 5 days there was a 1.6% increase in the number of hospitalizations on the fifth day.

These effects were found to be significant for both genders, with daily and consecutive changes in stock price index having a greater impact on men’s mental health.

Low stock price index and daily change in stock price index had a significant effect on hospitalisations for the 35-54 age groups while consecutive change affected the 45-54 age groups.

The results suggest that the mental health of middle-aged males may be critically influenced by the stock market.

“Drops in the value of stocks can, and often do, announce a reduction in wealth and the multiplication of business failures with consequential pay cuts or layoffs,” said Dr. Chung-Liang Lin, the first author of the study.

According to Lin, this causes people to have dire fears about the future, and these fears are heavily reinforced by media coverage.

“Our results suggest that, if someone is undergoing stressful and depressed conditions or has a mental illness, they should be encouraged to pay less attention to daily stock market movements, particularly middle-aged people who are suffering various pressures coming from job security, family and investments,” he said.

The article can be found at: Lin CL et al. (2014) Do stock prices drive people crazy?

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Source: Oxford University Press; Photo: Héctor Romero/Flickr/CC.
Disclaimer: This article does not necessarily reflect the views of AsianScientist or its staff.

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