A comprehensive reexamination of the weather effects

Chun-I Lee and Chueh-Yung Tsao ()
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Chun-I Lee: Loyola Marymount University
Chueh-Yung Tsao: Chang Gung University

Empirical Economics, 2024, vol. 66, issue 3, No 14, 1333-1382

Abstract: Abstract This paper revisits the weather effects with a comprehensive examination that includes all eight weather elements after controlling for the effect of seasonal affect disorder using the data from Taiwan between January 1, 1995, and October 31, 2021. We further employ principal component analysis to provide us with components that fittingly represent various multi-facet weather conditions and intuitively depict the relationship between the weather as we know it and investor behavior manifested in the overall market in returns, volatility, turnover, and liquidity. The results from a vector autoregression model based on both the individual weather elements and weather components show that the weather effects exist. We also find that warnings about extreme weather condition of a typhoon have a direct effect and heavy rain an indirect effect on market liquidity. In addition, institutional investors' buying and selling activity is linked to weather conditions. The robustness of the weather effects is further demonstrated by the results of the intraday return analysis and from considering different numbers of weather elements and conditions in the model.

Keywords: Weather effects; Extreme weather; Tropical cyclone (search for similar items in EconPapers)
JEL-codes: G10 G40 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-023-02492-w

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