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November 1, 2001

Blame The Weather For Poor Returns Finance Professors Look at the Sun

By Brian O'Connell and Gregory Bresiger

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  • Blame The Weather For Poor Returns Finance Professors Look at the Sun

A group of academics at Ohio State University's Fisher College of Business asserts that, on sunny days, investors are more inclined to be upbeat and are likely to be bullish.

"There's a great deal of evidence from psychology that sunshine helps put people in a good mood and people in good moods make more optimistic choices and judgments," said David Hirshleifer, a finance professor who fills the Kurtz Chair at Ohio State University in Columbus.

"If people are more optimistic when the sun shines, they may be more inclined to buy stocks on sunny days," added the professor at Ohio State University, a public institution funded by millions of taxpayers who may not be in a sunny mood when they hear how their tax dollars are spent.

The study showed the daily difference in expected market returns between a completely overcast day and a sunny day is nine basis points (0.088 percent), or an annualized excess return of 24.8 percent.

Hirshleifer conducted the unconventional study with Tyler Shumway, assistant professor of finance at the University of Michigan. Their study has been conditionally accepted for publication at the Journal of Finance. It is also available online as a working paper at Ohio State's Department of Finance web site: http://fisher.osu.edu/ fin/dice/papers/2001/2001-3.htm

In developing the study, Hirshleifer and Shumway examined daily returns at the leading stock exchanges in 26 countries (including England, Brazil and Singapore) from 1982 to 1997. For each trading day in that 16-year period, they studied data on average cloud cover from 6 a.m. to 4 p.m. local time for the cities with the stock exchanges. All data came from the U.S. National Climactic Data Center.

The results showed that more sunshine was associated with higher stock market returns. Hirshleifer's study doesn't include an astrology reading. He doesn't believe astrology can be used to predict stock markets.

Using astrology to predict markets is "utterly ridiculous," he said. However, the study does include a survey of the correlation between bullish performance and sunshine at 26 leading stock exchanges around the world, including the New York Stock Exchange.

"This is the kind of story," said a spokesman for the Big Board, "that makes me glad that we don't comment on these kinds of things."

The spokesman was not enthusiastic about this kind of research. He added that the NYSE has not done any studies on the effects on the stock market of weather, football or even the reported citings of UFOs in either Roswell, New Mexico or lower Manhattan.

In the Hole

The study also suggested that maybe investors can learn from groundhogs.

Investors, these professors say, should also take into account whether they see their shadow walking out the door in the morning.

"Our results suggest investors can trade profitably on the weather," Hirshleifer said. "It's not a way to get rich quick and there is risk involved. But if you're optimally balancing risk and return, you should indeed take into account the weather in your trading strategy," he added.