Abstract
This paper examines the impact of weather phenomena on the German stock market, evaluating cloud cover, humidity, air pressure, precipitation, temperature, and wind speed as weather variables. We use stock market data (returns, trading volume, and volatility) from the DAX, MDAX, SDAX, and TecDAX for the period from 2003 to 2017 and show, with modern time-series (GARCH) models that air pressure is the only weather variable that exerts a potentially consistent effect on the stock market. Air pressure reduces the trading volume on the SDAX and TecDAX, and changes in air pressure lead to increases in returns on the DAX, MDAX and SDAX. The effects of the other weather variables show no clear pattern and are critically discussed. In addition, this article contains an overview of the historical research results on the effects of weather on stock markets.
Highlights
In the first empirical investigation of the impact of weather phenomena on the stock market, Saunders (1993) indicated of the limits of classical capital market theory, showing a significant negative effect of clouds on the returns of North American equity indices
This paper examines the impact of weather phenomena on the German stock market, evaluating cloud cover, humidity, air pressure, precipitation, temperature, and wind speed as weather variables
In contrast to the findings of traditional studies, here, we could not observe a sunshine or cloud cover effect. One reason for this might be that almost all former studies identifying a sunshine or cloud cover effect adopted classic ordinary least squares (OLS) or time-series models, which cannot accurately represent stock market data, as they are characterized by autocorrelation and volatility clustering
Summary
In the first empirical investigation of the impact of weather phenomena on the stock market, Saunders (1993) indicated of the limits of classical capital market theory, showing a significant negative effect of clouds on the returns of North American equity indices Motivated by this empirical finding, numerous studies with different study designs and overall inconclusive results followed (e.g., Bassi et al 2013; Chang et al 2008; Dowling and Lucey 2008; Frühwirth and Sögner 2015; Hirshleifer and Shumway 2003; Kamstra et al 2003; Krämer and Runde 1997; Symeonidis et al 2010).
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