Sunny days spark stock market optimism - Investment - Brief Article

USA Today (Society for the Advancement of Education), Dec, 2001

When the sun is shining on Wall Street, it does more than put the brokers in a good mood--it gives a lift to the stock market. A study has found that morning sunshine at the sites of 26 leading stock exchanges around the world--including the New York Stock Exchange--is linked to positive market returns that day. The results showed that the daily difference in expected market returns between a completely overcast day and a sunny day is nine basis points (0.088%), or an annualized excess return of 24.8%.

"There's a great deal of evidence from psychology that sunshine helps put people in a good mood, and people in good moods make more optimistic choices and judgments," maintains David Hirshleifer, the Kurtz Chair in Finance at Ohio State University's Fisher College of Business, Columbus. "If people are more optimistic when the sun shines, they may be more inclined to buy stocks on sunny days." He conducted the study with Tyler Shumway, assistant professor of finance at the University of Michigan, Ann Arbor.

The study took into account seasonal variations in sunshine in all 26 cities, as well as the effects of other weather conditions, such as rain and snow. Even when these factors were controlled, sunshine gave stocks a lift. "Once the amount of sunshine is taken into account, we bund that rain or snow have no further power to predict returns," Hirshleifer notes.

While the effect uncovered by the study is not large, a difference in returns of nine basis points between an overcast day and a sunny day is not something that investors should ignore, he observes. "Our results suggest investors can trade profitably on the weather. It's not a way to get rich quick, and there is risk involved. But if you're optimally balancing risk and return, you should indeed take into account the weather in your trading strategy."