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Weather effects on returns: Evidence from the Korean stock market

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  • Yoon, Seong-Min
  • Kang, Sang Hoon

Abstract

In this study, we attempted to determine whether a relationship exists between stock returns and the weather variables of temperature, humidity, and cloud cover in the Korean stock market. We delineated three key implications with regard to weather effects. First, after the 1997 financial crisis, the presence of a weather effect disappeared. Second, the inclusion of weather variables helps to model the GJR-GARCH process in the conditional variance. Third, the interaction effects of weather variables fully demonstrate the weather effect, but the interaction effects also vanished after the crisis. Overall, the findings of this study indicate that the weather effect was weakened as the result of heightened market efficiency.

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  • Yoon, Seong-Min & Kang, Sang Hoon, 2009. "Weather effects on returns: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(5), pages 682-690.
    • Handle: RePEc:eee:phsmap:v:388:y:2009:i:5:p:682-690
    DOI: 10.1016/j.physa.2008.11.017
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    Cited by:

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    6. Tiwari, Aviral Kumar & Albulescu, Claudiu Tiberiu & Yoon, Seong-Min, 2017. "A multifractal detrended fluctuation analysis of financial market efficiency: Comparison using Dow Jones sector ETF indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 483(C), pages 182-192.
    7. Shahzad, Farrukh, 2019. "Does weather influence investor behavior, stock returns, and volatility? Evidence from the Greater China region," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 525-543.
    8. Mamatzakis, E, 2013. "Does weather affect US bank loan efficiency?," MPRA Paper 51616, University Library of Munich, Germany.
    9. Nils Muhlack & Christian Soost & Christian Johannes Henrich, 2022. "Does Weather Still Affect The Stock Market?," Schmalenbach Journal of Business Research, Springer, vol. 74(1), pages 1-35, March.
    10. Kang, Sang Hoon & Jiang, Zhuhua & Lee, Yeonjeong & Yoon, Seong-Min, 2010. "Weather effects on the returns and volatility of the Shanghai stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(1), pages 91-99.
    11. Dong, Xiyong & Yoon, Seong-Min, 2023. "Effect of weather and environmental attentions on financial system risks: Evidence from Chinese high- and low-carbon assets," Energy Economics, Elsevier, vol. 121(C).
    12. Chatterjee, Sucharita & Ghosh, Dipak, 2021. "Impact of Global Warming on SENSEX fluctuations — A study based on Multifractal detrended cross correlation analysis between the temperature anomalies and the SENSEX fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 571(C).
    13. Muhammad Fayyaz Sheikh & Syed Zulfiqar Ali Shah & Shahid Mahmood, 2017. "Weather Effects on Stock Returns and Volatility in South Asian Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(2), pages 75-107, June.
    14. Wu, Qinin & Lu, Jing, 2020. "Air pollution, individual investors, and stock pricing in China," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 267-287.
    15. Frühwirth, Manfred & Sögner, Leopold, 2015. "Weather and SAD related mood effects on the financial market," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 11-31.
    16. Peillex, Jonathan & El Ouadghiri, Imane & Gomes, Mathieu & Jaballah, Jamil, 2021. "Extreme heat and stock market activity," Ecological Economics, Elsevier, vol. 179(C).
    17. Lu, Jing & Chou, Robin K., 2012. "Does the weather have impacts on returns and trading activities in order-driven stock markets? Evidence from China," Journal of Empirical Finance, Elsevier, vol. 19(1), pages 79-93.
    18. Chinnadurai Kathiravan & Murugesan Selvam & Sankaran Venkateswar & S. Balakrishnan, 2021. "Investor behavior and weather factors: evidences from Asian region," Annals of Operations Research, Springer, vol. 299(1), pages 349-373, April.
    19. Zhuhua Jiang & Rangan Gupta & Sowmya Subramaniam & Seong-Min Yoon, 2021. "The Effect of Air Quality and Weather on the Chinese Stock: Evidence from Shenzhen Stock Exchange," Sustainability, MDPI, vol. 13(5), pages 1-20, March.
    20. Wu, Qinqin & Hao, Ying & Lu, Jing, 2018. "Air pollution, stock returns, and trading activities in China," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 342-365.
    21. 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.
    22. Yan, Yumeng & Xiong, Xiong & Li, Shuo & Lu, Lei, 2022. "Will temperature change reduce stock returns? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    23. Jingbin He & Xinru Ma, 2021. "Extreme Temperatures and Firm-Level Stock Returns," IJERPH, MDPI, vol. 18(4), pages 1-22, February.
    24. Silva, Pedro & Almeida, Liliana, 2011. "Weather and stock markets: empirical evidence from Portugal," MPRA Paper 54119, University Library of Munich, Germany.
    25. Zhuhua Jiang & Sang Hoon Kang & Chongcheul Cheong & Seong-Min Yoon, 2019. "The Effects of Extreme Weather Conditions on Hong Kong and Shenzhen Stock Market Returns," IJFS, MDPI, vol. 7(4), pages 1-14, December.

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