Weather, Mood, and Stock Market Expectations: When Does Mood Affect Investor Sentiment?

Abstract

Using survey-based explicit investor sentiment measures, this paper analyzes when investors' stock market expectations are a ffected by weather-induced mood. This study provides new insights into mood and decision making by directly comparing private and institutional investors. This paper shows that while private investors' stock market expectations are biased through weather conditions, expectations of institutional investors are not biased. Private investors' biases are longer-term. There is a signi fficant positive eff ect of barometric pressure on investors' 6-months expectations. Short-term investor sentiment, however, is not aff ected. I conclude that higher stock returns on days when the weather is pleasant are due to longer-term induced optimism, not due to short-term optimism.