Blog - Investing Notes
March 1, 2007 - What Puts Brits in
the Mood (for Buying or Selling Stocks)?
Do macroenvironmental variables affect stock returns by influencing
aggregate investor mood? In their February 2007 paper entitled "Mood
and Uk Equity Pricing", Michael Dowling and Brian Lucey investigate
the relationship between between a variety of mood variables (temperature,
precipitation, wind speed, geomagnetic storms, Seasonal Affective Disorder,
Daylight Savings Time Changes and lunar phases) and returns for a broad
UK stock index and a small-capitalization UK stock index. Using daily
data for the period 12/12/04-11/10/04, they conclude that:
- Only wind speed and high temperatures show consistent relationships
with UK stock returns. Wind relates negatively, and high temperatures
relate positively.
- Since only two of 23 tested mood variable settings show a consistent
effect, it seems unlikely that macroenvironmental variables are useful
stock market indicators.
In summary, there is no reliable weather-sun-moon risk premium.
One might speculate that stock prices affect the aggregate mood of
investors more than the converse.
For related research, see Blog
Synthesis: Animal Spirits Round-up.
