The UCSD study investigated stock prices and how they impact investor psychology

There is a strong inverse correlation between daily stock returns and hospital admissions for psychological conditions — including anxiety, panic disorders or major depression — according to a recent publication presented by UCSD finance professors during the annual meeting of the American Economic Association.

UCSD Rady School of Management professors Joseph Engelberg and Christopher Parsons explored how stock prices impact investor psychology in their paper, “Worrying about the stock market: Evidence from hospital admissions.”

“A lot of behavioral finance is about how your mind affects markets, and very little talks about the other way around,” Engelberg said during an interview with Bloomberg News. “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.”

A way to examine real-time psychological well-being experienced by investors is to look at the rate at which patients from a large population are admitted to hospitals due to mental health conditions.

“First, we obtain admission records for every California hospital for each day from 1983 until 2011,” Engelberg and Parsons said.

According to data provided by California’s Office of Statewide Health Planning and Development, more than 11,000 residents are hospitalized each day on average.

By taking portfolios of stock returns and performing time-series regressions, the researchers investigated how the stock market impacts investor psychology. Their data spans a bulk of three decades, in which they concluded that hospitalization rose when stock shares fell, and more people are hospitalized due to mental conditions.

“It’s a very straightforward result,” Engelberg said during the American Economic Association meeting. While his research definitely provides correlations between hospital admittance and stock levels, any causal effects are left unresolved.

“The effect is particularly strong for conditions related to mental health such as anxiety, suggesting that concern over shocks to future, in addition to current, consumption influences an investor’s instantaneous perception of well-being,” Engelberg and Parsons said in the publication.

While people admitted to the hospital during a stock market plunge may not necessarily own stock, the stress may be an overall effect caused by the economic plunge at large. Engelberg and Parsons’ paper provides a correlational interpretation of data, which may provide insight for stressed people to watch out for their own health due to the economy.