This topic has rarely been explored in finance so let’s take a look!
The Circadian Rhythm. The Circadian Rhythm directly affects productivity. Human beings, like virtually all species (even bacteria), are encoded with a oscillatory “rhythm” of daily bodily functions. The rhythm regulates sleep schedule, hourly chemical levels, brain way activity, and other metabolic processes, and it is controlled by external cues (light) hitting the retina and producing a chemical change in the SCN (part of the hypothalamus) involving melatonin. Animals with damaged circadian rhythms struggle to function, and oftentimes, are unable to survive at all.
In terms of economic productivity, the Circadian Rhythm is a major player. This site has shown that hormone levels can affect performance here and here. Depending on the time of day, hormones will be at different levels and people will function accordingly. It is possible that at time when testosterone or cortisol levels are higher (based on the the Circadian Rhythm), people may take greater risks and act as we discussed. The studies simply have not been done (yet!).
Furthermore, businesses with nighttime shifts are affected. Night workers do not produce at the same level if their light-dark cycle is not “re-entrained”; some daytime sleep is not enough for these workers. This would affect businesses to different degrees. For example, a trading firm that depended on night time trading would do best to follow a re-entrainment schedule for its employees.
It’s clear that the Circadian Rhythm affects economic productivity, but I’m curious how it affects finance. How are traders affected by this rhythm in terms of their daily productivity? Furthermore, how are the various exchanges affected? I would venture a guess that the effect is minimal but not unsubstantial. In Wall Street, that could mean the difference is $$ BILLIONS $$.