Assignment no.

1
[09-M. Jahangir ilyas]
Weather and stock market return.
Mood, feelings etc. are the psychological factor that affects the human decision making, and these psychological
factors affected by environmental factors such as weather. So the purpose of the study is to see what is the
relationship between stock market return and the weather condition, how the weather affects peoples decision
making. There are many researches made previously those suggests that in sunny days stock market is more volatile,
peoples are more optimistic and stock market returns are much higher. While in the cloudy days results are negative
, stock market is less volatile and stock market returns are less are peoples are pessimistic in decision making. In this
research to types of data is collected, daily financial and stock market data from stock exchanges. The researcher
uses daily data from Portugal stock market from Lisbons stock exchange that represent three quarter of Portuguese
market and weather data collected from US Environmental Protection Agency. Period is from 1995-2007 only two
study previously uses financial econometric technique (generalized autoregressive conditional heteroscedasitcity or
GARCH models) to investigate the relationship between stock market return and weather factors. So Paper uses ARGRACH model under several distributional assumptions (normal, Students-t and GED) for errors. So the paper reexamines the relation between weather and stock market returns using GARCH model. As all previous paper dont
consider the fact that stock markets are electronic market these days as traders and investors are able to trade from
any part of the world using electronic platform, so this research also neglects the e-trading as our purpose is to
investigate the mood and behavior of investor by temperature. Result shows that stock market returns are higher in
January than in any other month of the year. So the Empirical result shows that lower the temperature higher the
results of stock market. Further research can also takes place by see the impact of other meteorological variables
(Amount of sunshine, humidity) in other major stock markets.
Does the weather affect stock market volatility?
In this paper the researcher see the association between stock market volatility and investors mood-proximities
related to weather (Cloudiness, temperature and precipitation) and the environment (nighttime length). The main
imperial findings in this literature are sunshine effect according which cloudiness has a negative correlation with
daily equity index return. The sunny weather is thought to influence the mood of some investors making them
optimistic, which turn leads to higher return. Here the researcher uses weather and environmental variable sample at
daily intervals: sky cover, temperature, precipitation, the variation in the number of hours of night, and Seasonal
Affective Disorder. Sky cover is measured by (SKC), ranging from 8 (overcast) to 0 (clear). Temperature and
Precipitation are measured in degrees. The researches uses GJR-GARCH model to check the relationship. The
empirical results show the negative relationship between stock market volatility and SAD, cloudiness. The good
mood is linked with increase in trading and volatility. There could also be a cause that during sunny weather
investor communicate and socialize more which increase the amount of effective information and volatility.
Stock market returns and the temperature effect: Thailand
As related to above research this research is also focus on the relationship between temperature and stock market.
The environmental factor such as weather effects the psychological factors such as mood, emotions and feelings
those in turn effects the human decision making.so as the relationship of stock market and weather is concerned it
has been seen that in sunny days stock market returns are higher than on cloudy days as because in sunny days
peoples are more socialize and optimistic which uplifts stock market returns. Daily financial Data is collected from
the stock exchange of Thailand and weather data from weather stock exchange. And data is analyzed for the period
from 3 January 1996 to 24 February 2010. And the model use for checking the result is AR-GARCH with Studentst and general error distributions and returns are calculated as logarithmic price .and we found the result that
temperature has a negative relation with stock exchange returnas when temperature increases returns decreases
and vice versa.