Rain or Shine: Where is the Weather Effect?

William N. Goetzmann, Ning Zhu

NBER Working Paper No. 9465
Issued in February 2003
NBER Program(s):Asset Pricing

Saunders (1993) and Hirshleifer and Shumway (2001) document the effect of weather on stock returns. The proposed explanation in both papers is that investor mood affects cognitive processes and trading decisions. In this paper, we use a database of individual investor accounts to examine the weather effects on traders. Our analysis of the trading activity in five major U.S. cities over a six-year period finds vistually no difference in individuals propensity to buy or sell equities on cloudy days as opposed to sunny days. If the association between cloud cover and stock returns documented for New York and other world cities is indeed caused by investor mood swings, our findings suggest that researchers should focus on the attitudes of market-makers, news providers or other agents physically located in the city hosting the exchange. NYSE spreads widen on cloudy days. When we control for this, the significance of the weather effect is dramatically reduced. We interpret this as evidence that the behavior of market-makers, rather than individual investors, may be responsible for the relation between returns and weather.

download in pdf format
   (685 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9465

Published: Goetzmann, William N. and Ning Zhu. "Rain or Shine: Where is the Weather Effect?" European Financial Management 11, 5 (November 2005): 559-578. citation courtesy of

Users who downloaded this paper also downloaded* these:
Barberis and Thaler w9222 A Survey of Behavioral Finance
Bhattacharya, DeLeire, Haider, and Currie w9004 Heat or Eat? Cold Weather Shocks and Nutrition in Poor American Families
Novy-Marx w18063 Pseudo-Predictability in Conditional Asset Pricing Tests: Explaining Anomaly Performance with Politics, the Weather, Global Warming, Sunspots, and the Stars
Schwert w9277 Anomalies and Market Efficiency
Deschenes and Moretti w13227 Extreme Weather Events, Mortality and Migration
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us