The Effects of Weather, Biorhythms and Beliefs on Finnish Stock Returns

The purpose of this thesis is to investigate the effects that weather, biorhythms and beliefs have on Finnish stock returns. Being aware of the possible reactions of human mind to weather, biorhythms or beliefs enables investors to avoid mood based errors in their trades and make better investment decisions. The seven mood proxy variables examined in this study are cloudiness, rain, humidity, seasonal affective disorder, daylight saving time changes, lunar cycles and Friday the thirteenth. The theoretical background of the thesis is based on the efficient markets and the behavioral finance. The notion of the Efficient Market Hypothesis (EMH) and three versions of efficiency are covered. In addition, the most renowned financial anomalies that contradict the EMH are included in the theory. Behavioral finance mainly builds on two blocks, which are the limits to arbitrage and cognitive psychology. These concepts are demonstrated with the help of practical examples of incidents from financial markets. In addition, the existing literature of the relationship between mood proxy variables and stock returns is introduced in this thesis. The data consists of the daily stock returns for the Finnish Stock Exchange price index Nasdaq OMX Helsinki (OMXH). The daily stock returns for the FTSE All-World index were also collected in order to determine a local component of Finnish stock returns. All the index data was obtained from Datastream from the sample period of 31st December 1993 to 27th June 2013. The relationship between mood proxy variables and Finnish stock returns was found to be relatively weak. However, the results indicate that especially during Friday the 13th Finnish investors should pay attention to their investment decisions. Also, some further investigation on a possible enhanced new moon effect for small cap stocks or Halloween effect in Finnish stock market was suggested.fi=Kokotekstiversiota ei ole saatavissa.|en=Fulltext not available.|sv=Fulltext ej tillgänglig