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Good Day Sunshine: Stock Returns and the Weather

David Hirshleifer and Tyler Shumway
The Journal of Finance
Vol. 58, No. 3 (Jun., 2003), pp. 1009-1032
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/3094570
Page Count: 24
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Good Day Sunshine: Stock Returns and the Weather
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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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