Weather-Induced Mood, Institutional Investors, and Stock Returns
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Case Western Reserve University - Department of Banking & Finance
University of Miami - School of Business Administration
Qin "Emma" Wang
Oklahoma State University - Tulsa
September 8, 2014
This study shows that weather-based indicators of mood impact perceptions of mispricing and trading decisions of institutional investors. Using survey and disaggregated trade data, we show that relatively cloudier days increase perceived overpricing in individual stocks and the Dow Jones Industrial Index, and increase selling propensities of institutions. We introduce stock-level measures of investor mood; investor pessimism negatively impacts stock returns, mostly amongst stocks with higher arbitrage costs, and stocks experiencing similar changes in weather-induced mood exhibit return comovement. These findings complement existing studies on how weather impacts stock index returns, and identify another channel through which it can manifest.
Number of Pages in PDF File: 56
JEL Classification: D84, G11, G12, G14, G23
Date posted: September 13, 2013 ; Last revised: October 25, 2014
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