When stocks drop, more people go to the hospital

Experts: Investors get 'worried sick' over stock performance

A sudden dip in stock performance may trigger a rise in hospital admissions, particularly for psychological conditions like anxiety or panic attacks, according to research presented Sunday at the American Economic Association's annual meeting.

For the study, finance professors Joseph Engelberg and Christopher Parsons of the University of California-San Diego (UCSD) examined admission records at California hospitals from 1983 to 2011 provided by the Office of Statewide Health Planning and Development.

The researchers used time series regressions to gauge whether, and how quickly, stock market performance impacted the wellbeing of California-based investors. The calculations revealed an inverse relationship between equity losses and hospital admissions:

  • A one-day decline in the stock market of 1.5% was associated with a 0.26% increase in California hospital admissions over the next two days.
  • Market plunges had a stronger and more immediate impact on psychological conditions, with admissions related to anxiety, panic disorder, or depression rising more than 0.5% in one day.
  • On one extremely bad day for the stock market—Oct. 17, 1987, which is also known as Black Monday—share prices fell nearly 25% and hospital visits increased by 5%.

The authors estimate that equity-market losses induce 3,700 stock-related hospitalizations in California annually. When applied to the country, that would add approximately $650 million to U.S. health care costs.

Expert: Losing can be downright deadly

The notion that people get "stressed out and anxious and depressed when the stock market performs poorly… may be very obvious, but I think this is the first paper to come along and try to take a good step at quantifying how big that is," says Engelberg, who specializes in behavioral finance at UCSD's Rady School of Management, said in a follow-up interview.

Engelberg notes that even people who do not own any stocks suffer from market drops because they see a decline in their own economic prospects. He adds that investors continue to suffer from mental health disorders during low periods of volatility.

"Your expectations are set by what you experienced in the recent past," he said, adding, "If it wasn't very bumpy and you see a big bump down today, that's more likely to get you depressed or stressed or anxious than if you saw a lot of bumps in the past year" (Kearns, Bloomberg, 1/6; Lopez, Business Insider/San Francisco Chronicle, 1/6).

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