Testing weather effect anomalies: Time varying evidence from selected stock markets

Abstract

Weather effect is a financial research field demonstrating that changes in weather conditions have an effect on asset yields. Moreover, Weather effect is one of the leading anomalies in behavioral finance and it has been checked by various tests for different countries and time zones in literature. In this study, whether weather effect anomaly exists in basic stock markets in Turkey, Belgium, France and Greece was analyzed by using time varying bootstrap causality test. Time varying bootstrap causality test is able to identify causality in time zones instead of presenting absolute judgments about series beyond the traditional tests. In the study, daily temperature, humidity and stock market data belonging to these 4 countries between 2001 and 2013 were used. The findings obtained indicate that weather effect anomaly is valid not in the entire data period but in some periods in the stock market. Within this context, it was established that for all country wise stock markets, efficient market hypothesis is valid in some periods whereas weather effect which is one of behavioral finance anomalies also applies in some periods as well. © International Economic Society.