The Effect of Sleep Disruption on Investor Information Processing

Inadequate sleep is a public health epidemic in the U.S., and poor sleep habits are especially common among professional investors. Neuroscience research finds that sleep disruption inhibits information processing by impairing higher-order cognitive functions. Using Daylight Saving Time (DST) phase advances, which disrupt the human sleep cycle, we examine the effect of sleep disruption on investors’ processing of earnings news. We find consistent evidence of a muted reaction to earnings reported during the week following a DST advance. However, we fail to find evidence of decreased information awareness or acquisition activities among market participants during this period, suggesting that sleep disruption delays investors’ integration of acquired earnings information into trading decisions. Overall, our findings imply that the effect of sleep disruption on investor cognition is different from the effects of external factors identified by prior research, and our study provides insight into the costs of sleep inadequacy for capital markets