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Does Weather Matter?

Author

Listed:
  • Jian Hu

    (Southern Methodist University)

Abstract

We use semi-parametric bin tests, regression analyses and copula modeling techniques to identify the relationship between temperature and stock market returns. After examining 25 international stock markets, we find that the negative correlation is statistically significant in individual countries, i.e. the higher is the temperature, the lower the stock returns. However, we fail to find joint significance of temperature effects across markets after correcting for market comovement by seemingly unrelated regression. We also find negative temperature effects on returns are robust to different measures of daily temperature. Both constant-dependence and time-varying-dependence conditional copula models are employed to analyze the general dependence between temperature and stock market returns. The copula results show that the negative relation remains after controlling for autocorrelations, GARCH effects and non-normality and the dependence between temperature and stock market returns is relatively stable over time.

Suggested Citation

  • Jian Hu, 2008. "Does Weather Matter?," Departmental Working Papers 0809, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:0809
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    File URL: https://ftp1.economics.smu.edu/WorkingPapers/2008/Hu/Hu-2008-11-2.pdf
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    References listed on IDEAS

    as
    1. Jacobsen, B. & Marquering, W.A., 2004. "Is it the weather?," ERIM Report Series Research in Management ERS-2004-100-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
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    9. Hu, Jian, 2008. "Dependence Structures in Chinese and U.S. Financial Markets -- A Time-varying Conditional Copula Approach," MPRA Paper 11401, University Library of Munich, Germany.
    10. repec:bla:jfinan:v:44:y:1989:i:5:p:1115-53 is not listed on IDEAS
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    Cited by:

    1. Sri Utami Ady, 2018. "The Cognitive and Psychological Bias in Investment Decision-Making Behavior: (Evidence From Indonesian Investor's Behavior)," Journal of Economics and Behavioral Studies, AMH International, vol. 10(1), pages 86-100.
    2. Silva, Pedro & Almeida, Liliana, 2011. "Weather and stock markets: empirical evidence from Portugal," MPRA Paper 54119, University Library of Munich, Germany.

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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