Weather, Sentiment, and the Stock Market

Abstract

This study examines the relationship between the weather and intraday investor sentiment. Our results indicate that high temperatures, high humidity, high cloud coverage, and extreme rain negatively affect investors’ moods, whereas high winds and long sunshine durations improve their moods. Humidity, cloud coverage, and the sunshine duration significantly affect investor sentiment at market opening, whereas temperature, wind, and rain affect investor sentiment during the rest of the day. Stock market returns are weakly affected by cloud coverage but are unaffected by other weather variables. The weather has more prominent effects on turnover, volatility, and illiquidity. It has stronger effects on the market when accompanied by changes in investor sentiment. This study is the first to identify this intermediary through which weather affects market variables and to connect weather, sentiment, and markets.

Keywords: Intraday analysis, Investor sentiment, Stock market returns, Trading activity, Weather