Edinburgh Napier University

  We address in this study the issue of how to proxy sleep and explore sleep’s significance for financial markets. We employ daily Google search activity on sleepiness terms (e.g. sleep deprivation) to develop an index and find that a one-day lagged sleepiness index is related negatively to US stock market returns. When investors lack sleep, stock market returns are relatively low. This pattern could be explained by sleep deprivation causing an increased level of investor anxiety and risk aversion. We find that this relation is most pronounced on days with high uncertainty in the market. Sleep is negatively related to stock market returns even after controlling for sentiment. Overall, our results highlight the application of Google Trend in a new field showing that investors’ sleep patterns influence their investment decisions.