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
KB Kee is the Managing Editor of the Moat Report Asia (, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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