The Empirical Study of Weather Effect in Taiwan Stock Market
Date Issued
2009
Date
2009
Author(s)
Lai, Han-Chun
Abstract
The misattribution of mood argues that people in a good mood are more optimistic about events, on the contrary, in a bad mood are more pessimistic. Even though the mood is irrelevant to the information being evaluated, at times, people’s decisions are still guided by their feelings in some degree. In this paper, we use database of Taiwan Stock Exchange to examine the weather effect on stock returns. Moreover, in order to provide sufficient evidence that weather relate to investor’s trading behavior, we include several indirect investor sentiment indices in the model respectively. Due to the non-normality property of stock market data, we apply quantile regression to fit the empirical model. With the conditional quantile estimates, we can further verify in which stock market performance weather effect most. he empirical results suggest there is no influence of weather on stock returns. Even so, we still find some evidence that investor reflect their mood on trading behavior. Temperature or cloudy days are negatively associated with individual investor turnover ratios and day trading ratios, this phenomenon gets severe at high quantile. It imply the circumstance that individual investors are more risk aversion when their background mood is over-optimistic and trading strategy is speculation. In the aspect of institutional investors, their propensity to buy or sell equities is truly depends on whether the day is sunny or cloudy. But this effect reduce, as institutional investors get much more stock market information.
Subjects
weather effect
misattribution of mood
indirect investor sentiment indices
quantile regression
Type
thesis
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