CIAO DATE: 11/2012
June 2012
Weatherhead Center for International Affairs, Harvard University
After a series of papers has provided—partially ambiguous—results on the impact of weather variables on stock (index) returns, this article studies the impact of weather on a wide variety of financial market instruments, namely "risk-free" interest rates, the US corporate bond market, stock returns, stock index returns and the VIX volatility index. First, we construct a model that combines asset pricing and results from psychology to show how weather variables can a ffect asset prices in diff erent market segments via mood. Second, in our empirical analysis we use several weather variables from the National Climatic Data Center (NCDC) and control variables motivated by economic theory. Applying various econometric techniques and using di fferent market segments (motivated by diff erences in the risk level and institutional di fferences) allows to give a more detailed picture on the impact of weather on fi nancial market prices. We demonstrate that on none of the market segments analyzed the weather has any signi ficant impact.
Resource link: Does the Sun Shine Really Shine on the Financial Markets? [PDF] - 558K