An Expanded study on the Stock Market Temperature Anomaly

This is a companion paper to our previous study in Cao and Wei (2005) on stock market temperature anomaly for eight international stock markets. The temperature anomaly is characterized by a negative relationship between stock market returns and temperature. This line of work relies on the impact of environmental variables, such as temperature, on mood and behavior changes. In this paper, we expand the sample in Cao and Wei (2005) to include 19 additional financial markets. Our evidence confirms the identified negative relationship for the expanded sample. More importantly, our nonparametric tests, as opposite to the parametric or semi-parametric approaches used by previous related studies, demonstrate that this negative relationship is robust to distributional assumptions. Based on the sub-sample analysis, we find that this negative relationship is stable over time. Furthermore, we consider temperature deviation and demonstrate that this negative relationship is not just a level effect.