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Stock market returns and the temperature effect: new evidence from Europe

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  • Christos Floros

Abstract

In this article we investigate if stock market returns are related to temperature. Research in behavioural finance shows that lower temperature can lead to aggression, while higher temperature can lead to both apathy and aggression (Cao and Wei, 2005). Evidence from previous studies suggests that the temperature anomaly is characterized by a negative relationship between stock market returns and temperature. We consider daily financial and temperature data from five European countries: Austria, Belgium, France, Greece and UK. Using a Generalized Autoregressive Conditional Heteroscedasticity (GARCH) method, we find a negative relationship between temperature and stock market returns for Austria, Belgium and France only. Greece and UK show a positive but not significant correlation between temperature and stock market returns. These findings are strongly recommended to financial managers and investors dealing with European stock indices.

Suggested Citation

  • Christos Floros, 2008. "Stock market returns and the temperature effect: new evidence from Europe," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 461-467.
    • Handle: RePEc:taf:raflxx:v:4:y:2008:i:6:p:461-467
    DOI: 10.1080/17446540801998585
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    Cited by:

    1. Schulte-Huermann, Astrid, 2020. "Impact of Weather on the Stock Market Returns of Different Industries in Germany," Junior Management Science (JUMS), Junior Management Science e. V., vol. 5(3), pages 295-311.

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