The contribution of weather variability to economic sectors

Miia Parnaudeau and Jean-Louis Bertrand

Applied Economics, 2018, vol. 50, issue 43, 4632-4649

Abstract: Every day, people make economic decisions based on the weather, affecting sales of companies in a wide range of economic sectors. In many cases, the impact of weather on sales is not constant from one season to the next. Yet, the existing research to estimate the influence of temperature on annual sales has not analysed the relationship per season, resulting in potential washout effects and underestimated weather impacts. Drawing upon French economic sectors for empirical evidence, we break down the analysis of the relationship between weather and monthly sales by season. Our methodology provides the cumulative annual contribution of weather to sales and allows deriving the maximum potential annual impact of adverse weather. With our results, analysts and risk managers can better understand the exposure to abnormal weather and consider the potential benefits of mitigating weather risk using the weather parameters we identify to structure bespoke index-based financial instruments.

Date: 2018
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DOI: 10.1080/00036846.2018.1458200

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