|M.Sc Student||Alex Rehtman|
|Subject||On Weather as a Mood Proxy and the Direction of Security|
|Department||Department of Industrial Engineering and Management||Supervisor||Full Professor Kliger Doron|
|Full Thesis text|
Psychological research has shown that different weather conditions affect mood, and that mood affects behavior. A body of psychological literature shows that the most important weather phenomena affecting people’s mood are sunshine and temperature. In this work we investigate the relation between these two weather factors and securities returns. Previous studies exploring these relations show mixed results. The main shortcoming of these works is that they examine the relations between weather and index returns at the location of the exchange, while some of the traders pass their trading orders from other places and may experience different weather conditions. We overcome this difficulty by exploring early security markets. We exploit a unique database of Russian securities traded at the Berlin exchange at the end of the ninetieth century. At that time communication was not as sophisticated as today, so the investors had to be near the exchange or inside it in order to perform trade orders.
We find that weather affects security returns. Specifically, the results show that there is bigger chance for the market "to go down" on cloudy days, most of the impact taking place on days of total cloudiness. Regarding temperature, there is a strong negative correlation with security returns and an even stronger negative correlation between temperature deviations (from normal) and returns.