Weather and stock markets: empirical evidence from Portugal

Multiple psychological studies support a relationship between weather and the mood of individuals. Furthermore, mood seems to influence the decision making process of individuals namely when those decisions are risky. Therefore, weather may have an indirect impact on market returns. We review the current evidence and investigate the relationship between four weather variables (Rain, Temperature, Sunshine and Wind speed) and the returns of a Portuguese stock market index between January 2000 and December 2009. In this research, based on “bin tests” and regression analysis, we detect the influence of temperature, especially, low temperatures, on the stock market (low temperatures being associated with higher returns) but we cannot rule out the possibility that weather effects are being confounded with simpler calendar patterns.