On this edition of "Behind the Blue," UKNow and Tyler Kleppe, assistant professor in UK Gatton College, discuss how "springing forward" as part of daylight saving time impacts high stakes financial decisions. You can listen to the full interview by clicking here.
LEXINGTON, Ky. (April 5, 2024) — Every year, more than 97% of Americans, and more than 1.6 billion people worldwide, move their clocks forward one hour in the spring — allowing for more evening light as part of daylight saving time (DST).
Sure, that “spring forward” might make you more noticeably tired and cranky. But time is more than just numbers on a clock — it's a force that shapes our days, our routines and even our well-being.
And according to Tyler Kleppe’s new research, that heavy-eyed feeling doesn’t just impact simple day-to-day tasks.
In fact, the assistant professor in the Gatton College of Business and Economics at the University of Kentucky, has shown losing that hour is also affecting higher stakes decisions — like investing for one’s retirement.
“Even if you're not directly involved in capital markets, our financial system is relevant to all of us,” Kleppe said. “That’s why it remains important to evaluate regulatory actions and continue asking if they are effective.”
A number of studies show that DST transitions can negatively impact decision-making processes due to the disturbance they have on our circadian rhythm.
For example, research finds people experience more pronounced mood swings. There are also more serious consequences, such as an increase in car accidents and an uptick in health complications.
But little is known about the influence on financial markets.
“Really the core question we're exploring here is: can that disruption impact how investors respond to firms’ earnings disclosures?” Kleppe explained. “Then, we can have one more piece of evidence to help inform the national debate surrounding daylight saving time.”
Kleppe’s research closely examines how DST transitions impact investors’ reactions to corporate earnings news.
He said, it’s important to note, the DST jump takes place the second week of March during spring earnings season — a period when many public firms disclose value-relevant earning information to investors.
To further investigate the relation between DST transitions and investor information processing, Kleppe and his co-authors examined quarterly earnings announcements made by U.S. firms from 2007-2018 under the Energy Policy Act of 2005.
“We looked at the trades of investors immediately following the disclosure of earnings,” he said. “The idea is, if the earnings news is positive, then investors will buy more stock. However, if the earnings news is negative, or lower than expected, then investors would sell more of the stock.”
However, the research finds relatively muted effects to corporate earnings announcements in the days following our collective spring forward. Kleppe notes this can be explained by the lower information processing abilities associated with the time change.
“Basically, investors are going to respond less to earnings. So, they don't respond as they ‘quote unquote’ should — or that we would expect they would — under normal circumstances, which has implications for your investment returns.”
According to the findings, the impact is more apparent among firms with investors who are more likely to be trading on earnings news and among firms with less sophisticated investors.
“If you have a brokerage account, for example, an E -Trade account, a Robinhood account, and you're just making trades here and there, you're a retail investor. Typically, these investors tend to be a little less sophisticated,” Kleppe continued. “Because the retail investors have fewer protocols and procedures in place to protect against cognitive disruptions, they are seemingly most affected by the time change.”
Equipped with the results of Kleppe’s research, the question becomes, should Kentucky continue to follow daylight saving time?
It’s seemingly been on lawmakers’ minds for several years.
The Uniform Time Act of 1966 mandates the use of DST throughout the country. However, it allows states to opt-out and stay on standard time year-round. Currently, only two states do not observe DST (Arizona and Hawaii). However, the U.S. Congress, and at least 19 state legislatures, are considering legislation to eliminate DST transitions.
According to the National Conference of State Legislatures, three pieces of legislation regarding changes to DST policy in Kentucky failed in 2020.
In 2022, the Kentucky House of Representatives urged Congress to permanently adopt daylight saving time by passing the Sunshine Protection Act. But two other House Resolutions failed.
In 2023, a measure was introduced in the Kentucky House to make DST year-round if the Uniform Time Act of 1966, or the Standard Time Act of 1918, are amended by Congress. That measure also failed.
Most recently, another bill was introduced in the Kentucky House that would exempt Kentucky from the use of DST and keep the state on standard time year-round.
“Regardless, it’s important to understand, these transitions really appear to have a significant impact on our physical, mental, financial health and everything in between,” Kleppe continued. “And we hope this research can be informative to current legislative discussions — both at the state and federal levels.”
As the debate continues, Kleppe is encouraging investors not to make major decisions in the days following the time change. He also hopes to spark an even larger conversation around why business research matters.
“Hopefully, we are kick-starting more exploration in this area. One paper is certainly not enough,” he said. “There's a lot of different areas that can be studied to give a more well-rounded picture of how daylight saving time transitions can and does impact all of us, and business research has an important role to play.”
You can listen to the full interview with Kleppe on "Behind the Blue" by clicking the play button above.
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