Some investors ponder the effect that weather has on the stock market, but financial analysts assure us that there is no correlation. Even so, many still debate the issue and seem to find evidence for their opposing viewpoints. While the idea that weather can impact how well stocks perform can seem ridiculous, a deeper look reveals very real reasons to consider this possibility.Investment Behavior and Weather Changes
An interest in how weather affects the stock market may have been born out of the realization that weather does affect mood. Traders may feel more dire on rainy days, or more hopeful on pleasant spring mornings, but does this affect their actions on the trading floor? Determining that there is a correlation isn’t as difficult as it may seem.
After all, we record and save data pertaining to weather patterns and market performance as a means of helping us predict future patterns. It stands to reason that comparing those records shouldn’t be too difficult.
Even as a study is undertaken, it’s important to select the types of data that will produce the most accurate results. For instance, a study conducted at the University in Cleveland sought to determine how weather and mood affected stock prices. These researchers concluded that overpricing was more likely to occur on cloudy days and that, as a result, more organizations would sell off their stocks.
A much older study, which was published in 1980, predicted that weather had a significant impact on stock market performance. However, in proceeding with the study, the hypothesis was proven wrong. The researchers did conclude that the day of the week, especially Monday, did have a noticeable impact on the market’s performance.
A 1997 study also sought to address the issue. This study was intended to duplicate the results of a 1993 study, which concluded weather patterns did impact stock market performance. Unfortunately, the 1997 study actually disproved the existence of a correlation.
Amid studies that present contrasting results, people still argue over the potential of weather to influence stock performance. Some argue that weather affects all aspects of business, such as logistics and production efficiency, so it must, therefore, affect market performance. Others argue that the effect is much more direct, causing mood changes in the traders on the floor. Meanwhile, there are still others that contend that the weather has absolutely no impact on how the stock market performs. Until we can all agree on a definitive method of measuring for the potential of a correlation, the issue will likely remain a matter of opinion.