On the relationship between weather and stock market returns
Purpose – The aim of this paper is to examine the relationship between weather (temperature) and stock market returns using daily data from Portugal; also, to examine whether the temperature is driven by calendar-related anomalies such as the January and trading month effects. Design/methodology/approach – Daily financial and weather data from Lisbon Stock Exchange (PSI 20 index) and Lisbon capital for the period 1995-2007 are considered. The paper employs an AR(1)-TGARCH(1,1) model under several distributional assumptions (Normal, Student's-t and GED) for the errors. Findings – Empirical results show that temperature affects negatively the PSI20 stock returns in Portugal. Moreover, temperature is dependent of both January and trading month effects. Stock returns were found to be positive in January and higher over the first fortnight of the month. Lower temperature in January leads to higher stock returns due to investors' aggressive risk taking. Research limitations/implications – Further research should investigate the impact of other meteorological variables (humidity, amount of sunshine) and other calendar anomalies on the course and behaviour of major international stock indices using data before and after the recent crisis. Practical implications – The findings are helpful to financial managers, investors and traders dealing with the Portuguese stock market. Originality/value – The contribution of this paper is to provide evidence on the empirical linkages between temperature and stock market returns using GARCH models. To better understand the relationship between the temperature and stock market returns, the paper also examines whether the returns are higher in winter (January effect) and during the first or second fortnight of the month (trading month effect). To the best of the author's knowledge, this is the first empirical investigation on weather and stock market returns relationship for Portugal.
Volume (Year): 28 (2011)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com |
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=sef Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Goetzmann & Ning Zhu, 2002.
"Rain or Shine: Where is the Weather Effect?,"
Yale School of Management Working Papers
ysm296, Yale School of Management, revised 01 Sep 2009.
- William N. Goetzmann & Ning Zhu, 2004. "Rain or Shine: Where is the Weather Effect?," Yale School of Management Working Papers ysm28, Yale School of Management.
- William N. Goetzmann & Ning Zhu, 2003. "Rain or Shine: Where is the Weather Effect?," NBER Working Papers 9465, National Bureau of Economic Research, Inc.
- Moller, Nicholas & Zilca, Shlomo, 2008. "The evolution of the January effect," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 447-457, March.
- Peter Alaton & Boualem Djehiche & David Stillberger, 2002. "On modelling and pricing weather derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(1), pages 1-20.
- Cooper, Michael J. & McConnell, John J. & Ovtchinnikov, Alexei V., 2006. "The other January effect," Journal of Financial Economics, Elsevier, vol. 82(2), pages 315-341, November.
- 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.
- Symeonidis, Lazaros & Daskalakis, George & Markellos, Raphael N., 2010.
"Does the weather affect stock market volatility?,"
Finance Research Letters,
Elsevier, vol. 7(4), pages 214-223, December.
- Saunders, Edward M, Jr, 1993. "Stock Prices and Wall Street Weather," American Economic Review, American Economic Association, vol. 83(5), pages 1337-45, December.
- Dorje Brody & Joanna Syroka & Mihail Zervos, 2002. "Dynamical pricing of weather derivatives," Quantitative Finance, Taylor & Francis Journals, vol. 2(3), pages 189-198.
- Mark Kamstra & Lisa Kramer & Maurice Levi, 2002.
"Winter blues: a SAD stock market cycle,"
2002-13, Federal Reserve Bank of Atlanta.
- 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.
- Christos Floros & Shabbar Jaffry & Goncalo Valle Lima, 2007. "Long memory in the Portuguese stock market," Studies in Economics and Finance, Emerald Group Publishing, vol. 24(3), pages 220-232, September.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Christos Floros, 2008. "Stock market returns and the temperature effect: new evidence from Europe," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(6), pages 461-467.
- 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, 06.
- Chang, Tsangyao & Nieh, Chien-Chung & Yang, Ming Jing & Yang, Tse-Yu, 2006. "Are stock market returns related to the weather effects? Empirical evidence from Taiwan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 364(C), pages 343-354.
- Hirshleifer, David, 2001.
"Investor Psychology and Asset Pricing,"
5300, University Library of Munich, Germany.
- Fred Espen Benth & Jurate Saltyte-Benth, 2005. "Stochastic Modelling of Temperature Variations with a View Towards Weather Derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(1), pages 53-85.
When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:28:y:2011:i:1:p:5-13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If references are entirely missing, you can add them using this form.