Abstract

We hypothesize that weather’s emotional effects depend on climate and season, and examine the relation between weather (sunshine, wind, rain, snow, and temperature) and daily index returns separately for each region (cold, hot, and mild countries) and month. In a large sample from 49 countries from 1973 to 2012, we find strong effects on stock returns of all five weather variables and all but the sunshine effect vary across temperature regions and seasons. The systematic patterns of weather effects across climates and seasons suggest that weather influences stock returns through investor mood, and that the emotional effects of the weather are stronger and more pervasive than previously documented. Our results reveal two contrasting themes of the weather–return relationship: comfortable weather conditions promote positive affect and lead to higher returns especially during seasons of increased outdoor activity, but extreme low temperature in the winter elevates risk taking and leads to higher returns.