Despite the arguments made by prospect theory, there is a lack of studies investigating asymmetric effects in the relationship between stock markets and mental health. We use the UK based Understanding Society panel dataset between 2010 and 2023 to investigate if stock market fluctuations have an asymmetric impact on mental health, and if there are mental health spillover effects on investors' household members, providing the first paper to investigate this relationship using an asymmetric fixed effects model for panel data. We find that a decreasing stock market index has a stronger impact on mental health than an increasing one, supporting prospect theory. We also suggest that prospect theory does not hold for males in explaining the relationship between stock market fluctuations and mental health. Finally, we provide novel evidence for a mental health spillover effect of negative 52‐week returns on investors' household members.