Apparently Plummeting Stocks Can Send Investors To The Hospital

This is no way to end up in the hospital, people.

Falling stocks are stressing people out to the point of illness, according to a study conducted by the University of San Diego.

After combing through California hospital patient records from 1983 to 2011, Professors Joseph Engelberg and Christopher A. Parsons found an inverse correlation between losses in the stock market, and increased hospital visits.

If stocks drop 1.5% in one day, there’s a 0.26% increase in hospital visits over the next two days, according to the study.

Here’s how they figured that out:

First, we obtain admission records for every California hospital for each day from 1983 until 2011. Our proxy for the real-time psychological well being experienced by investors is the rate at which patients from a large population are admitted to hospitals, particularly for mental health conditions such as anxiety, panic disorder, or major depression.2 This measure has the benefit not only of being revealed versus self-reported, but also because it is constructed at daily intervals, facilitates causal inferences. We then form portfolios of stock returns that we think are relevant for California-based investors: 1) a broad-based market index, and 2) an index consisting only of local companies. Time series regressions tell us whether, and how quickly, the stock market impacts investor psychology.

Of course, the researchers took a look at especially bad days for the stock market, like October 17th, 1987, also known as ‘Black Monday. On that day, stocks fell almost 25% and hospital visits increased by 5%.

Engelberg and Parsons also tried to calculate how much this stock induced stress could be costing California and the United States. They (very roughly) worked it out — considering trading days, the number of stress induced visits to the hospital, and the average cost of a visit to the hospital — to be around $US77 million for California and around $US650 million for the U.S. annually.

A few things Engelberg and Parsons drew from this that you should know. First, they conclude that investors are freaking out about what will happen to stocks in the future based on what’s happening during a given trading day.

That fear of what will happen tomorrow means that if the market goes back up, it doesn’t necessarily mean investors will feel better. They’re still traumatized from the fall down. It was like that with Black Monday hospital visits. According to the study, it didn’t matter to stressed out Californians that half of the previous day’s losses had been erased by October 20th. They were still scared sick.

The study also pointed out that it’s time “to think about the welfare implications associated with the widespread dissemination of financial information, on an almost minute-to- minute basis.”

Of course, to change that we’d have to decide to change the course of media history. There’s no going back from having mobile phones (and Bloomberg machines) equipped with Twitter and a 24 hour news cycle on television.

But do investors have to take every drop in the stock market so physically? Just because Maria Bartiromo is losing it over the fiscal cliff at 4:00 p.m EST every day does that mean investors should too? (The study actually uses the fiscal cliff situation as an example, so clearly these guys are watching financial TV like we are.)

Point is, don’t let the stock market make you sick. Try not to stress yourself out.

But if you do start to freak, deal with it like Wall Streeters have for ages — with exercise or scotch.

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