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
University of Michigan Dearborn - College of Business
September 26, 2013
This study shows that weather-based indicators of mood impact perceptions of mispricing and trading decisions of institutional investors. We use survey and disaggregated trade data to show that relatively cloudier days increase perceived overpricing in both individual stocks and the Dow Jones Industrial Index, and increase the selling propensities of institutions. We introduce stock-level measures of investor mood, and demonstrate that investor pessimism negatively impacts daily stock returns, mostly among stocks that are costly to arbitrage. We also document return comovement among stocks experiencing similar changes in weather-induced mood. These findings complement existing studies on the weather effect on stock index returns, and identify an additional channel through which it can manifest.
Number of Pages in PDF File: 63working papers series
Date posted: September 13, 2013 ; Last revised: September 26, 2013
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