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What Puts Brits in the Mood (for Buying or Selling Stocks)?

| | Posted in: Animal Spirits

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.

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