The Effects of Extreme Weather Conditions on Hong Kong and Shenzhen Stock Market Returns

Zhuhua Jiang, Sang Hoon Kang, Chongcheul Cheong and Seong-Min Yoon
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Zhuhua Jiang: Division of Chinese Foreign Affairs and Commerce, Hankuk University of Foreign Studies, Seoul 02450, Korea
Sang Hoon Kang: School of Business Administration, Pusan National University, Busan 46241, Korea
Chongcheul Cheong: College of Basic Studies, Yeungnam University, Daegu 38451, Korea

IJFS, 2019, vol. 7, issue 4, 1-14

Abstract: We investigate the impact of extreme weather conditions on the stock market returns of the Hong Kong Stock Exchange and Shenzhen Exchange. For the weather conditions, we apply dummy variables generated by applying a moving average and moving standard deviation. Our study provides two interesting results. First, extreme weather conditions have a significant impact on the stock returns of the Shenzhen Exchange, indicating that the Shenzhen market is inefficient. Second, during the pre-QFII period, extreme weather conditions have a strong impact on the returns of the Shenzhen stock market, but the impact is significantly weaker in the period after QFII. This means that the efficiency of the Shenzhen stock market has significantly increased since the QFII program due to the market openness to foreign institutional investors. We emphasize the role of foreign investors not affected by local weather conditions by observing how market opening affects extreme weather impacts on stock market returns.

Keywords: behavioral finance; extreme weather; financial market openness; investment sentiment; MA-MSD method; QFII plan (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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