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Under Pressure: Stock Returns and the Weather

27 Pages Posted: 16 Feb 2013 Last revised: 28 Apr 2014

Michael Schneider

Goethe University Frankfurt - House of Finance

Date Written: April 28, 2014

Abstract

This paper uses a novel approach to analyze the weather's effect on stock returns. In contrast to previous studies, I focus on barometric pressure to analyze whether there is a weather effect because only barometric pressure is physically experienced by all decision makers, be they indoors or outdoors. Psychological studies show that high barometric pressure induces positive moods. Comparing large cap, small cap, and technology stocks, I find that barometric pressure has a strong, robust, and economically significant positive impact on stock returns. The effect is strongest for technology stocks and for small stocks. Controlling for other weather variables used in previous studies, I conclude that barometric pressure is the main weather variable affecting stock returns. Moreover, it is possible to predict the next day's return.

Keywords: Efficient markets, mood, weather effect, barometric pressure

JEL Classification: G02, G10, G12, G14

Suggested Citation

Schneider, Michael, Under Pressure: Stock Returns and the Weather (April 28, 2014). Available at SSRN: https://ssrn.com/abstract=2218805 or http://dx.doi.org/10.2139/ssrn.2218805

Michael Schneider (Contact Author)

Goethe University Frankfurt - House of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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