Weather Sentiment Index and Stock Return Predictability: Evidence from China

Tian Ma, Cunfei Liao and Fuwei Jiang

Emerging Markets Finance and Trade, 2023, vol. 59, issue 9, 2894-2905

Abstract: This paper introduces a weather-related sentiment (mood) index (WSI) for the Chinese stock market based on precipitation and temperature data with the PLS method. We find that the WSI is negatively correlated with the equity market and has strong predictive power that is far greater than that of other market and macroeconomic variables. The predictability also holds under the characteristic-mimicking portfolios. The driving force of the WSI’s predictive power appears to stem from its ability to predict future cash flow, which reflects investor preference.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:9:p:2894-2905

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DOI: 10.1080/1540496X.2023.2202796

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