Lisa Kramer
Professor of Finance University of Toronto
- Toronto ON
Lisa Kramer studies the way human characteristics play a role in investor decisions and financial markets
Media
Social
Biography
Industry Expertise
Areas of Expertise
Education
University of British Columbia
Ph.D.
Finance
1998
Simon Fraser University
B.B.A.
Finance & Economics
1991
Honours
Affiliations
- Justwealth Financial : Advisory Board Member
- Northern Finance Association : Board of Directors
- Critical Finance Review : Associate Editor
- Journal of Multinational Financial Management : Associate Editor
- Journal of Behavioral and Experimental Finance : Editorial Board Member
- SSRN Behavioral and Experimental Finance Abstracts : Advisory Board Member
Media Appearances
How to keep personal biases from torpedoing your retirement plan
The Globe and Mail online
2016-06-09
University of Toronto finance professor Lisa Kramer, who examines human behaviour in financial decision making, says seasonal depression can spur people to sell in a volatile market because they become despondent and risk averse.
“What people will do is panic and sell, rather than riding it out,” she says. “A big implication for people close to retirement is that they will sell their whole nest egg right at the market crash and lock in at a low value.”
A counter-strategy, she suggests, is to have a financial plan and stick to it. “The worst thing to do can be to act when we are feeling emotional.”
How robo-advisers are changing the way financial planning gets done
CBC/Radio-Canada online
2016-02-23
"Generally when I talk to Canadian investors, they have no idea that our country's mutual fund fees are among the highest in the world," says Lisa Kramer, who teaches finance at the University of Toronto's Rotman School of Management.
"And they also tend not to understand that they are literally paying their mutual fund company as much as three per cent of the value of their portfolio each year, whether their holdings go up or down in value," says Kramer. "So I expect we'll see some shock waves as the fee disclosures start to circulate."
Behavioural Finance 101
TVO: The Agenda with Steve Paikin tv
2015-06-10
Ever since the market crash of 2008, people have become more familiar with the term behavioural economics, but what is behavioural finance? Steve Paikin speaks with the University of Toronto's Lisa Kramer about this new field of study and the implications of Seasonal Affective Disorder on the market crashes of the past.
The Weird Reason You Should Buy Treasury Bonds Right Now
Time online
2015-05-20
University of Toronto researcher Lisa Kramer and her team found that monthly returns on Treasury bonds swing 80 basis points on average between October and April, peaking in the fall and bottoming out in the spring.
“That kind of a systematic difference is huge,” says Kramer.
The variation seems to be caused by SAD, a seasonal mood disorder that affects up to 10% of the population.
‘The end of bitcoin’? Major online exchange Mt. Gox goes bust
Toronto Star Newspapers online
2014-02-26
Lisa Kramer, an associate finance professor in Toronto, said the shut down is not a surprise because Mt. Gox has been dealing with serious security issues for several months, including users recently being banned from making withdrawals.
“Bitcoin has been operating in limbo for some time. The writing has been on the wall,” said Lisa Kramer, with the Rotman School of Management at the University of Toronto.
“A lot of economists had been predicting that Bitcoins days are numbered.”
Kramer said people use Bitcoin due to convenience and ease, and Mt. Gox shows that these reasons may no longer apply.
Roseman: Why we are wired to be lousy investors
Toronto Star Newspapers online
2012-12-27
I heard about the project from Lisa Kramer, associate finance professor at the University of Toronto, who studies the non-rational factors influencing our financial behaviour.
For example, does seasonal affective disorder, also known as winter blues, lead to stock market crashes?
“Most crashes happen in the fall, when daylight reduction is most rapid,” she says an interview at her Rotman School of Management office.
Research Grants
Standard Research Grant
SSHRC
2010‐2014
Standard Research Grant
SSHRC
2010‐2014
Insight Development Grant
SSHRC
2011‐2014
Insight Grant
SSHRC
2013‐present
Insight Grant
SSHRC
2014‐present
Articles
Winter Blues and Time-Variation in the Price of Risk
Journal of Empirical Finance2005
Previous research has documented robust links between seasonal variation in length of day, seasonal depression (known as seasonal affective disorder, or SAD), risk aversion, and stock market returns. The influence of SAD on market returns, known as the SAD effect, is large. We study the SAD effect in the context of an equilibrium asset pricing model to determine whether the seasonality can be explained using a conditional version of the CAPM that allows the price of risk to vary over time. Using daily and monthly data for the US, Sweden, New Zealand, the UK, Japan, and Australia, we find that a conditional CAPM that allows the price of risk to vary in relation to seasonal variation in the length of day fully captures the SAD effect. This is consistent with the notion that the SAD effect arises due to the heightened risk aversion that comes with seasonal depression, reflected by a changing risk premium.
Estimating the Equity Premium
Journal of Financial and Quantitative Analysis2010
Existing empirical research investigating the size of the equity premium has largely consisted of a series of innovations around a common theme: producing a better estimate of the equity premium by using better data or a better estimation technique. The equity premium estimate that emerges from most of this work matches one moment of the data alone: the mean difference between an estimate of the return to holding equity and a risk-free rate. We instead match multiple moments of U.S. market data, exploiting the joint distribution of the dividend yield, return volatility, and realized excess returns, and find that the equity premium lies within 50 basis points of 3.5%, a range much narrower than was achieved in previous studies. Additionally, statistical tests based on the joint distribution of these moments reveal that only those models of the conditional equity premium that embed time variation, breaks, and/or trends are supported by the data. In order to develop the joint distribution of the dividend yield, return volatility, and excess returns, we need a model of price and return fundamentals. We document that even recently developed analytically tractable models that permit autocorrelated dividend growth rates and discount rates impose restrictions that are rejected by the data. We therefore turn to a wider range of models, requiring numerical solution methods and parameter estimation by the simulated method of moments.
This is Your Portfolio on Winter: Seasonal Affective Disorder and Risk Aversion in Financial Decision Making
Social Psychological and Personality Science2012
This study found that people who suffer from seasonal affective disorder (SAD) displayed financial risk aversion that varied across the seasons as a function of seasonally changing affect. The SAD-sufferers had significantly stronger preferences for safe choices during the winter than non-SAD-sufferers, and they did not differ from non-SAD-sufferers during the summer. The effect of SAD on risk aversion in the winter was mediated by depression.
Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity
Review of Asset Pricing Studies2014
We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury returns across the seasons: risky returns are higher and risk-free returns are lower or stable in fall/winter, and they reverse in spring/summer. Further, risky returns vary more than risk-free returns. A novel finding is that both EIS and risk aversion must vary seasonally to match observed returns. Further, the degree of necessary seasonal change in EIS is small.
Seasonal Variation in Treasury Returns
Critical Finance Review2015
We document a novel and striking annual cycle in the U.S. Treasury market, with a variation in mean monthly returns of over 80 basis points from peak to trough. We show that this seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, the weather, cross-hedging between equity and Treasury markets, conventional measures of investor sentiment, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, seasonalities in the FOMC cycle, or peculiarities of the sample period considered. Rather, the seasonal pattern in Treasury returns is significantly correlated with a proxy for variation in investor risk aversion across the seasons, and a model based on that proxy is able to explain more than sixty percent of the average seasonal variation in monthly Treasury returns. The White (2000) reality test confirms that the correlation between returns and the proxy for seasonal variation in investor risk aversion cannot be easily dismissed as the simple result of data snooping.
Seasonal Asset Allocation: Evidence from Mutual Fund Flows
Journal of Financial and Quantitative AnalysisForthcoming
We analyze the flow of money between mutual fund categories, finding strong evidence of seasonality in investor risk aversion. Aggregate investor flow data reveal investor preference for safe mutual funds in autumn and risky funds in spring. During September alone, outflows from equity funds average $13 billion, controlling for previously documented flow determinants (e.g., capital-gain overhang). This movement of large amounts of money between fund categories is correlated with seasonality in investor risk aversion, consistent with investors preferring safer (riskier) investments in autumn (spring). We find consistent evidence in Canada, and in Australia where seasons are offset by six months.
