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Is it the weather?

Author

Listed:
  • Jacobsen, B.
  • Marquering, W.A.

Abstract

We show that results in the recent strand of the literature that tries to explain stock returns by weather induced mood shifts of investors might be data-driven inference. More specifically, we consider two recent studies (Kamstra, Kramer and Levi, 2003a and Cao and Wei, 2004) that claim that a seasonal anomaly in stock returns is caused by mood changes of investors due to lack of daylight and temperature variations, respectively. We confirm earlier results in the literature that there is indeed a strong seasonal effect in stock returns in many countries: stock market returns tend to be significantly lower during summer and fall months than during winter and spring months. However, we also show that at best, these two studies offer two of many possible explanations for the observed seasonal effect. As an illustration we link ice cream production and airline travel to the stock market seasonality using similar reasoning. Our results suggest that without any further evidence the correlation between weather variables and stock returns might be spurious and the conclusion that weather affects stock returns through mood changes of investors is premature.

Suggested Citation

  • Jacobsen, B. & Marquering, W.A., 2004. "Is it the weather?," ERIM Report Series Research in Management ERS-2004-100-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:1816
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    File URL: https://repub.eur.nl/pub/1816/ERS%202004%20100%20F&A.pdf
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    References listed on IDEAS

    as
    1. Cao, Melanie & Wei, Jason, 2005. "Stock market returns: A note on temperature anomaly," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1559-1573, June.
    2. Lisa A. Kramer & Mark J. Kamstra & Maurice D. Levi, 2000. "Losing Sleep at the Market: The Daylight Saving Anomaly," American Economic Review, American Economic Association, vol. 90(4), pages 1005-1011, September.
    3. Angel Pardo & Enric Valor, 2003. "Spanish Stock Returns: Where is the Weather Effect?," European Financial Management, European Financial Management Association, vol. 9(1), pages 117-126, March.
    4. Garrett, Ian & Kamstra, Mark J. & Kramer, Lisa A., 2005. "Winter blues and time variation in the price of risk," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 291-316, March.
    5. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, June.
    6. Saunders, Edward M, Jr, 1993. "Stock Prices and Wall Street Weather," American Economic Review, American Economic Association, vol. 83(5), pages 1337-1345, December.
    7. Mark J. Kamstra & Lisa A. Kramer & Maurice D. Levi, 2003. "Winter Blues: A SAD Stock Market Cycle," American Economic Review, American Economic Association, vol. 93(1), pages 324-343, March.
    8. Sven Bouman & Ben Jacobsen, 2002. "The Halloween Indicator, "Sell in May and Go Away": Another Puzzle," American Economic Review, American Economic Association, vol. 92(5), pages 1618-1635, December.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Veera Lenkkeri & Wessel Marquering & Ben Strunkmann-Meister, 2006. "The Friday Effect in European Securitized Real Estate Index Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 33(1), pages 31-50, August.
    2. Dowling, Michael & Lucey, Brian M., 2008. "Robust global mood influences in equity pricing," Journal of Multinational Financial Management, Elsevier, vol. 18(2), pages 145-164, April.
    3. Jian Hu, 2008. "Does Weather Matter?," Departmental Working Papers 0809, Southern Methodist University, Department of Economics.

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    More about this item

    Keywords

    seasonal affective disorder; sell in May; spurious correlations; stock market seasonality; temperature;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

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