Good day sunshine: Stock returns and the weather.

Abstract Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relation between morning sunshine at a country's leading stock exchange and market index stock returns that day at 26 stock exchanges internationally from 1982-97. Sunshine is strongly significantly correlated with daily stock returns. After controlling for sunshine, rain and snow are unrelated to returns. There were positive net-of-transaction costs profits to be made from substantial use of weather-based strategies, but the magnitude of the gains was fairly modest. These findings are difficult to reconcile with fully rational price-setting