Daily returns at leading stock exchanges around the world are higher on sunny days than they are on overcast days, according to a new study.
Psychologists have long known that people tend to feel better on a warm, sunny day than they do on a cool, cloudy one. So researchers from Ohio State University and the University of Michigan studied stock exchanges in 26 countries from 1982 to 1997.
鈥淥n days when the sun is shining in the city of the leading exchange, stock trading tends to be better.鈥� says David Hershleifer from Ohio State鈥檚 Fisher College of Business.
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At the New York Stock Exchange, the average annual return from trading only on clear days was 24.8 per cent, while it was only 8.7 percent from trading on completely overcast days. Worldwide returns averaged 45.0 per cent on sunny days and only 16.2 per cent on cloudy ones, though these returns do not take account of the very high inflation rates in some countries.
鈥淲e鈥檙e not saying to go out and trade based on the weather,鈥� adds Hershleifer. Rather, he suggests that people be aware of their moods when playing the stock market.
Mood watch
Returns tend to be less affected by the sunshine in south-east Asia and Australia, perhaps because humidity is more important, says Hershleifer.
Investors, of course, want to take advantage of any useful information that can increase their profit margins. But the strategy will not work forever.
鈥淎s knowledge of this effect spreads, traders will strive to take it into account,鈥� says Paul Webley, an economic psychologist from the University of Exeter. 鈥淪o following the advice will dissipate the effect.鈥�
Webley believes that 鈥渧irtual weather鈥� 鈥� computer graphics to affect your mood 鈥� may be important in the future. 鈥淎s trading is increasingly done on computer screens, by both professionals and amateurs, graphics that encourage optimism or pessimism may become more significant.鈥�
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