Investing and the weather: Cold weather and stockmarket returns go hand-in-hand

Investing and the weather: Cold weather and stockmarket returns go hand-in-hand

Jun 14th 2014 | From the print edition

“THE weather is like the government,” wrote Jerome K. Jerome, “always in the wrong.” That may be true for those trying to organise a picnic or a cricket match, but when it comes to predicting the performance of stockmarkets, weather can be a good guide. Economists have long known that sunshine is good for stockmarkets, perhaps because nice weather makes people more optimistic. New research suggests that cold weather has an upside, too.

Ming Dong and Andréanne Tremblay of York University used data from Thomson Reuters’s global equity indices to examine the effect of local weather on the main market index in 49 countries from 1973 to 2012. They found, as expected, that warm weather sends prices higher—although when it gets too hot, the relationship breaks down. But their most striking finding was that thermometers and investors are not just fair-weather friends: very cold weather is also associated with higher returns. Why that should be is not clear. Mr Dong and Ms Tremblay surmise that cold stimulates risk-taking, referring to psychological studies in which participants reported increased aggression as temperatures dropped below -8°C (or 17.6°F).

The authors argue that there are fortunes to be made from the daily forecast. Based on the weather from 5am to 9am near the national stock exchanges in an assortment of countries, they predicted how each market index would perform on that day. The authors then took a long position in the market with the highest forecasted return and a short position in the one expected to do worst. Over the past few decades, they reckon, this approach would have generated an annual return of up to 25%.

The returns, however, vary wildly over time and by place. In hot countries, and in the Americas and Asia, the strategy would have made no money at all. Nor did Mr Dong and Ms Tremblay account for transaction costs. All the same, their findings may bring some cheer to the long, cold, dark Nordic winters.



About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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