By Jeff Kearns
PHILADELPHIA — Falling stocks get people worried sick, if hospital records are any guide.
A one-day drop in equities of around 1.5 percent is followed by about a 0.26 percent increase in hospital admissions on average over the next two days, according to a March 2013 study by Joseph Engelberg and Christopher Parsons, associate professors of finance at the University of California at San Diego. The impact on psychological conditions such as anxiety or panic attacks is even stronger and more immediate, with admissions jumping twice that much in one day.
“It’s a very straightforward result,” Engelberg said on Sunday at the American Economic Association’s annual meeting in Philadelphia, where he presented the findings. The results were based on almost three decades of daily admission data for California hospitals. Hospitalizations rise on days when shares fall, and “people are hospitalized disproportionately for mental conditions.”
Equity-market losses appeared to induce 3,700 market- related hospitalizations a year in California, which implies visits add roughly $650 million a year to U.S. health-care costs when data from the most-populous state are extrapolated nationally, Engelberg and Parsons estimated. They cited Census Bureau data showing an average hospitalization event costs around $21,000.
Mental-health admissions show up more quickly, with virtually the entire effect appearing the first day, the paper shows. That was especially true Oct. 19, 1987, when admissions jumped more than 5 percent after Standard & Poor’s 500 Index plunged 20 percent in the “Black Monday” crash, the researchers wrote.
The effect of a large market drop is twice as strong during periods of low volatility because “extreme returns are more surprising to investors,” Engelberg and Parsons concluded.
“Imagine you’re in a low-volatility regime and you have a big day down,” Engelberg said on Sunday on the panel discussion. “That stresses people out a lot more than if you’re in a high- volatility regime.”
The broader market affects people as much as local stocks. People are affected by the prospects of local companies, which may relate most directly to their own job or income, as much as they are by the fate of firms in other regions, according to the researchers, who compared health sensitivities for shares of California companies versus those based outside of the state.
“Both California returns and non-California returns send Californians into the hospital,” Engelberg said on the panel. Even people who don’t own any stocks suffer from a market drop as they see their own economic prospects dim, he said.
Their study was based on patient records from every California hospital from 1983 to 2011. The state’s 38 million residents make up about one-eighth of the American population.
Lisa Kramer, an associate professor of finance at the University of Toronto’s Rotman School of Management, said on Sunday’s panel that research shows links between stress and health. Studies show a heightened risk of depression after earthquakes, increased anxiety-related hospital admissions after the Sept. 11 terrorist attacks, and more anxiety-related visits during wartime.
She cited a study published in the American Journal of Cardiology showing a “significant correlation between a period of stock-market decrease” and rates of acute myocardial infarctions, better known as heart attacks, during the 2008-2009 financial crisis. The S&P 500 plunged 57 percent from October 2007 to a 12-year low in March 2009.
“When the market tanked, heart attack rates went up,” she said.