Stock market returns and the temperature effect: new evidence from Europe

Christos Floros

    Research output: Contribution to journalArticlepeer-review

    Abstract

    In this article we investigate if stock market returns are related to temperature. Research in behavioural finance shows that lower temperature can lead to aggression, while higher temperature can lead to both apathy and aggression (Cao and Wei, 2005). Evidence from previous studies suggests that the temperature anomaly is characterized by a negative relationship between stock market returns and temperature. We consider daily financial and temperature data from five European countries: Austria, Belgium, France, Greece and UK. Using a Generalized Autoregressive Conditional Heteroscedasticity (GARCH) method, we find a negative relationship between temperature and stock market returns for Austria, Belgium and France only. Greece and UK show a positive but not significant correlation between temperature and stock market returns. These findings are strongly recommended to financial managers and investors dealing with European stock indices.
    Original languageEnglish
    Pages (from-to)461-467
    Number of pages7
    JournalApplied Financial Economics Letters
    Volume4
    Issue number6
    DOIs
    Publication statusPublished - 2008

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