Is it the weather?

Ben Jacobsen and Wessel Marquering

ERIM Report Series Research in Management from 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

Abstract: We show that results in the recent strand of the literature that tries to explain stock returns by weather induced mood shifts of investors might be data-driven inference. More specifically, we consider two recent studies (Kamstra, Kramer and Levi, 2003a and Cao and Wei, 2004) that claim that a seasonal anomaly in stock returns is caused by mood changes of investors due to lack of daylight and temperature variations, respectively. We confirm earlier results in the literature that there is indeed a strong seasonal effect in stock returns in many countries: stock market returns tend to be significantly lower during summer and fall months than during winter and spring months. However, we also show that at best, these two studies offer two of many possible explanations for the observed seasonal effect. As an illustration we link ice cream production and airline travel to the stock market seasonality using similar reasoning. Our results suggest that without any further evidence the correlation between weather variables and stock returns might be spurious and the conclusion that weather affects stock returns through mood changes of investors is premature.

Keywords: seasonal affective disorder; sell in May; spurious correlations; stock market seasonality; temperature (search for similar items in EconPapers)
JEL-codes: G11 G14 G3 M (search for similar items in EconPapers)
Date: 2004-12-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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