Weather, Institutional Investors, and Earnings News

Abstract

We examine how pre-announcement weather conditions near a firm’s major institutional investors affect stock market reactions to firms’ earnings announcements. We find that unpleasant weather experienced by institutional investors leads to more delayed market responses to subsequent earnings news. Moreover, unpleasant weather of institutional investors is associated with higher earnings announcement premia. The influence of institutional investors’ weather is robust after controlling for New York City weather, extreme weather conditions, and firm local weather. Additional cross-sectional evidence suggests that the strength of this weather effect is related to institutional investors’ trading behavior.

Keywords: Weather Condition; Institutional Investor; Earnings Announcement; Post-earnings-announcement Drift

JEL Classification: G02, G14, G23, M41