Number 31, December 2001

Research Highlight

"Good Day Sunshine: Stock Returns and the Weather"

Researchers David Hirshleifer and Tyler Shumway have identified a novel societal impact of weather. “Good Day Sunshine: Stock Returns and the Weather” looked at the relationship between morning sunshine at a country’s leading stock exchange and stock returns that day at 26 stock exchanges around the world. They found that sunny days were highly correlated with above-average returns. For example, annualized returns in New York on perfectly sunny days were 24.8%, compared to only 8.7% on perfectly cloudy days. Rain and snow, however, had no effect on share returns. The findings appear to be consistent with theories that sunshine positively impacts mood and mood positively impacts prices. While the authors’ findings suggest that investors could have benefited somewhat modestly from weather-based trading strategies, the more important implication is that investors should become aware of their moods so they do not allow moods to cause errors in their judgments and trades. In other words, don’t let “Good Day Sunshine” lead to a foolish day on Wall Street.

To find out more about climatic effects on behavior, see Philip M. Parker’s Climatic Effects on Individual, Social, and Economic Behavior: A physioeconomic review of research across disciplines (Greenwood Press, 1995). Parker’s work is an extensive bibliography that includes 3,307 references on the effects of weather on physiology, psychology, sociology, and economics.