Making Money Whatever the Weather
- By Sam van de Schootbrugge
- 6 min read
Summary
- A new Journal of Banking and Finance paper shows weather can affect global stock markets.
- We can use temperature conditions to predict daily returns in cold countries.
- Combining measures of sunshine, rain, temperature and wind, the authors show how investors can construct weather-based trading strategies that offer up to 15% gross annualised returns.
Introduction
You rarely think of weather as having any impact on the stock market. Yet studies have shown that sunshine influences investors’ propensity to buy stocks, thereby affecting asset prices. The problem, however, is that these studies are quite primitive – they focus mainly on sunshine and fail to consider seasonal weather patterns.
A new Journal of Banking and Finance paper goes further. Alongside sunshine, it asks whether other weather conditions, such as wind, rain, snow and temperature affect markets. They do, and the authors show how a weather-based trading strategy can offer abnormal returns for investors.
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