Stock Returns and Investors’ Mood: Good Day Sunshine or Spurious Correlation?

Jae Kim

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the validity of statistical significance reported in the seminal studies of the weather effect on stock return. It is found that their research design is statistically flawed and seriously biased against the null hypothesis of no effect. This, coupled with the test statistics inflated by massive sample sizes, strongly suggests that the statistical significance is spurious as an outcome of Type I error. The alternatives to the p-value criterion for statistical significance soundly support the null hypothesis of no weather effect. As an application, the effect of daily sunspot numbers on stock return is examined. Under the same research design as that of a seminal study, the number of sunspots is found to be highly statistically significant although its economic impact on stock return is negligible.

Keywords: Anomaly; Behavioural finance; Data mining; Market efficiency; Sunspot numbers; Type I error; Weather (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2016-04-12
New Economics Papers: this item is included in nep-ecm and nep-fmk
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https://mpra.ub.uni-muenchen.de/70692/1/MPRA_paper_70692.pdf original version (application/pdf)

Related works:
Journal Article: Stock returns and investors' mood: Good day sunshine or spurious correlation? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:70692

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