Good Day Sunshine: Stock Returns and the Weather

Authors

  • David Hirshleifer,

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    • Hirshleifer is from the Fisher College of Business, Ohio State University and Shumway is from the University of Michigan Business School. We thank Aldo Rosas for his excellent research assistance. We also thank the editor, Rick Green; an anonymous referee; Andrew Ang; Michael Cooper; Joshua Coval; Bud Gibson; Marc Hulbert; Alice Isen; Daniel Kahneman; Seongyeon Lim; Barbara Mellers; Marina Murphy; Norbert Schwarz; Lu Zheng; Jason Zweig; and seminar participants at Cornell University, the Decision Sciences Consortium, and the Finance Department brown bag seminar at the University of Michigan for helpful comments. Any remaining errors are our own.
  • Tyler Shumway

    Search for more papers by this author
    • Hirshleifer is from the Fisher College of Business, Ohio State University and Shumway is from the University of Michigan Business School. We thank Aldo Rosas for his excellent research assistance. We also thank the editor, Rick Green; an anonymous referee; Andrew Ang; Michael Cooper; Joshua Coval; Bud Gibson; Marc Hulbert; Alice Isen; Daniel Kahneman; Seongyeon Lim; Barbara Mellers; Marina Murphy; Norbert Schwarz; Lu Zheng; Jason Zweig; and seminar participants at Cornell University, the Decision Sciences Consortium, and the Finance Department brown bag seminar at the University of Michigan for helpful comments. Any remaining errors are our own.

Abstract

Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns across 26 countries from 1982 to 1997. Sunshine is strongly significantly correlated with stock returns. After controlling for sunshine, rain and snow are unrelated to returns. Substantial use of weather-based strategies was optimal for a trader with very low transactions costs. However, because these strategies involve frequent trades, fairly modest costs eliminate the gains. These findings are difficult to reconcile with fully rational price setting.

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