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Stock Returns, weather, and air conditioning

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  • Jie Hou
  • Wendong Shi
  • Jingwei Sun

Abstract

This study investigates the relationship between stock returns and local weather through a new channel—the influence of the air-cooling system installed in the New York Stock Exchange (NYSE). To our knowledge, we are the first to employ the use of air conditioning to examine whether and how weather, especially excessively high temperature, and other factors affect stock returns. Using data for 1885–1914, we show that lower Dow Jones Average (DJA) returns were significantly associated with hotness before the NYSE trading rooms were equipped with the cooling system in 1903, whereas this correlation is largely weakened afterward. We also find that before the introduction of the air-cooling system, the negative effect of high temperatures on stock returns was stronger when the precipitation was lower. We obtain consistent results when controlling for the calendar anomalies such as the May-to-October effect, the Monday effect, and the effect of macroeconomic conditions.

Suggested Citation

  • Jie Hou & Wendong Shi & Jingwei Sun, 2019. "Stock Returns, weather, and air conditioning," PLOS ONE, Public Library of Science, vol. 14(7), pages 1-10, July.
    • Handle: RePEc:plo:pone00:0219439
    DOI: 10.1371/journal.pone.0219439
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    2. Afees A. Salisu & Christian Pierdzioch & Rangan Gupta & Reneé van Eyden, 2023. "Climate risks and U.S. stock‐market tail risks: A forecasting experiment using over a century of data," International Review of Finance, International Review of Finance Ltd., vol. 23(2), pages 228-244, June.
    3. Peillex, Jonathan & El Ouadghiri, Imane & Gomes, Mathieu & Jaballah, Jamil, 2021. "Extreme heat and stock market activity," Ecological Economics, Elsevier, vol. 179(C).
    4. Waldemar Tarczyński & Sebastian Majewski & Małgorzata Tarczyńska-Łuniewska & Agnieszka Majewska & Grzegorz Mentel, 2021. "The Impact of Weather Factors on Quotations of Energy Sector Companies on Warsaw Stock Exchange," Energies, MDPI, vol. 14(6), pages 1-14, March.

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