Global Weather-Based Trading Strategies
48 Pages Posted: 6 Feb 2018 Last revised: 13 Jan 2020
Date Written: January 10, 2020
We estimate the profitability of global index-level trading strategies formed on daily weather across 49 countries. We use ex ante weather conditions (sunshine, wind, rain, snow, and temperature) and the statistical relationship between weather and returns to predict index returns on each day. During 1993-2012, a global weather-based hedge strategy produced a mean annual return of 15.2% as opposed to a mean world index return of 3.1%, corresponding to a Sharpe ratio of 0.462 compared to 0.005 of the world index. Our findings confirm that multiple weather conditions exert economically important impacts on stock returns around the globe.
Keywords: weather, stock returns, trading strategy, temperature region, time zone, investor psychology
JEL Classification: G02, G11, G14, F39
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