Temperature and trading behaviours

Huajin Liu, Wei Zhang, Xiaotao Zhang*, Jia Liu

*Corresponding author for this work

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It is well known that the weather has an impact on human behaviors. Motivated by the extant literature concerning the positive linear relationship between temperature and investors’ trading based on regional data (e.g., Schmittmann et al., 2015), we re-examine the temperature effect by utilising a dataset that encompasses a large number of individual investors’ accounts and a wider range of weather conditions, and construct a comprehensive measure of sensed temperature, Apparent Temperature, which incorporates atmospheric temperature, relative humidity and wind velocity. Our results demonstrate that the relationship between Apparent Temperature and individual investors’ purchasing tendency displays an inverted U-shape. At a comfortable temperature, investors are more aggressive and tend to buy more stocks relative to selling. However, the relationship between Apparent Temperature and trading volumes displays a Ushape, suggesting that investors trade less on days when the temperature is comfortable, reducing non-financial opportunity costs. Further, Apparent Temperature displays greater external validity than the three weather conditions when they are examined individually. Our study provides original evidence of non-linearity, instead of the linearity documented by previous research, in the relationships between temperature and retail investors’ trading behaviours. Our findings contribute to the literature regarding the weather-induced sentiment misattribution of a diversity of investors.
Original languageEnglish
Article number101890
Number of pages19
JournalInternational Review of Financial Analysis
Early online date7 Oct 2021
Publication statusPublished - 1 Nov 2021


  • temperature
  • Apparent temperature
  • Retail investors
  • Trading behaviour
  • Sentiment
  • Investors' accounts data


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