Investors Literally "Worried Sick" About Stock Losses
"It's a very straightforward result," UCSD professors Joseph Engleberg calmly states, hospitalizations rise on days when shares fall, and "people are hospitalized disproportionately for mental conditions." Equity-market losses appeared to induce 3,700 market-related hospitalizations a year in California, which implies visits add roughly $650 million a year to U.S. health-care costs when data from the most-populous state are extrapolated nationally - another additional cost of QE? The findings, Bloomberg reports, show a one-day drop in equities of around 1.5% is followed by about a 0.26% increase in hospital admissions on average over the next two days.
Declining stocks worry people sick, if hospital records are any guide.
A one-day drop in equities of around 1.5 percent is followed by about a 0.26 percent increase in hospital admissions on average over the next two days, according to a March 2013 study by Joseph Engelberg and Christopher Parsons, associate professors of finance at the University of California at San Diego. The impact on psychological conditions such as anxiety or panic attacks is even stronger and more immediate, with admissions jumping twice that much in one day.
“It’s a very straightforward result,” Engelberg said yesterday at the American Economic Association’s annual meeting in Philadelphia, where he presented the findings. The results were based on almost three decades of daily admission data for California hospitals. Hospitalizations rise on days when shares fall, and “people are hospitalized disproportionately for mental conditions.”
Equity-market losses appeared to induce 3,700 market-related hospitalizations a year in California, which implies visits add roughly $650 million a year to U.S. health-care costs when data from the most-populous state are extrapolated nationally, Engelberg and Parsons estimated. They cited Census Bureau data showing an average hospitalization event costs around $21,000.
“People get stressed out and anxious and depressed when the stock market performs poorly,” Engelberg said in an interview after his presentation. “That may be very obvious, but I think this is the first paper to come along and try to take a good step at quantifying how big that is.”
The effect of a large market drop is twice as strong during periods of low volatility because “extreme returns are more surprising to investors,” Engelberg and Parsons concluded.
“Your expectations are set by what you experienced in the recent past,” Engelberg said in the interview. “If it wasn’t very bumpy and you see a big bump down today, that’s more likely to get you depressed or stressed or anxious than if you saw a lot of bumps in the past year.”
“When the market tanked, heart attack rates went up,” she said.
“A lot of behavioral finance is about how your mind affects markets and very little talks about the other way around,” Engelberg said in the interview. “We have evidence of causality coming from markets coming back to investor psychology, and that’s been a missing component in terms of empirical findings in a lot of prior research.”
So it would seem that Obamacare is perfectly timed as the bubbles the Fed has blown (and volatility suppression) will end up causing widespread illness...?
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