Are Weather-Based Trading Strategies Profitable?

39 Pages Posted: 6 Feb 2018

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

Andreanne Tremblay

Université Laval - Département de Finance et Assurance

Date Written: January 27, 2018

Abstract

We estimate the profitability of global index-level trading strategies formed on daily weather across 49 countries. We use ex ante weather information combined with the statistical relationship between daily weather and country index returns to predict index returns on each day. We then form a long-short hedge strategy and a long-only strategy, and find that both strategies generate substantially out-of-sample gross profits. The long-only strategy produces more consistent annualized profits of up to 20.5%, as opposed to a mean world index return of 3.75% during 1993-2012. These findings help solidify the claim that weather exerts economically important impact on mood, and investors can trade profitably on daily weather.

Keywords: weather, stock returns, trading strategy, temperature region, time zone, investor psychology

JEL Classification: G02, G11, G14, F39

Suggested Citation

Dong, Ming and Tremblay, Andreanne, Are Weather-Based Trading Strategies Profitable? (January 27, 2018). Available at SSRN: https://ssrn.com/abstract=3111467 or http://dx.doi.org/10.2139/ssrn.3111467

Ming Dong (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Andreanne Tremblay

Université Laval - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

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