Split Personalities? Behavioral Effects of Temperature on Financial Decision-making

Despina Gavresi, Anastasia Litina () and Christos Makridis

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: Do environmental factors affect financial decision-making and how might personality traits mediate these effects? Using plausibly exogenous variation in individuals' exposure to within-country fluctuations in temperature between 2004 and 2018 across 28 European countries and Israel, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with individual personality characteristics. We find that a 10% increase in temperature is associated with a 0.1 percentage point (pp) rise in the probability that an optimist invests in bonds and a 0.12 pp decline in the probability for stocks. However, among pessimists, we find null effects. We find similar results when we focus on the intensive margin of investment as well. We explain the mechanism behind these results with a stylized model where optimists are involved in more cognitively-demanding activities and sensitive to external stimuli. Our results are consistent with behavioral finance models where expectations moderate the transmission of shocks onto financial decision-making.

Keywords: Behavioral Finance; Expectations; Optimism; Stocks; Temperature (search for similar items in EconPapers)
JEL-codes: D87 D91 G11 G41 G51 (search for similar items in EconPapers)
Date: 2021-11, Revised 2021-11
New Economics Papers: this item is included in nep-cbe, nep-env and nep-eur
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Related works:
Journal Article: Split personalities? Behavioral effects of temperature on financial decision‐making (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:mcd:mcddps:2021_16

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