Stock Prices and Wall Street Weather: Additional Evidence

Abstract

Recent empirical research suggests that the weather in New York City has a long history of significant correlation with stock market returns. This prior research (Saunders, 1993) asserts that investor psychology influences asset prices and that the existence of a weather effect casts doubt on the rationality of security markets. This paper provides additional insight into the impact of weather on stock prices by using a variation of the approach used in Sounders (1993). The analysis indicates that the statistically significant test statistics reported by Saunders are dependent on which returns are compared. There is no significant difference between returns on clear sunny days and on cloudy rainy days, contrary to the notion of a weather effect. In addition, the effect noted by Saunders appears in only one of the three periods examined, and the effect is limited to only a few months of the year. Overall, results indicate that the relationship between weather and stock prices is neither as clear nor as strong as previously thought. Certain aspects of the data raise the possibility that there is no such effect.

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