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Stock returns and weather: The case of European listed energy firms

Author

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  • Jean-Louis Bertrand
  • Miia Chabot

Abstract

The influence of weather on stock markets has mainly been studied in the framework of behavioural finance. Using a weather-extended CAPM applied to European energy firms, we show that weather-related disclosures have little influence on returns, and highlight a significant market inefficiency due to a lag effect of weather. We find that the error between expected and observed returns decreases on average by 20% when using weather-extended CAPM compared to the traditional CAPM. As climate variability increases, these results should encourage analysts to consider the impact of weather on the stock returns of the 70% of companies exposed to the weather.

Suggested Citation

  • Jean-Louis Bertrand & Miia Chabot, 2020. "Stock returns and weather: The case of European listed energy firms," Finance, Presses universitaires de Grenoble, vol. 41(3), pages 51-92.
    • Handle: RePEc:cai:finpug:fina_413_0051
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