Honors Theses and Capstones

Date of Award

Spring 2021

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Finance

Program or Major

Business Administration: Finance

Degree Name

Bachelor of Science

First Advisor

Wenjuan Xie

Abstract

This study examined the correlation and impact of weather changes and average monthly temperature in the United States on the returns of the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Data collection includes average monthly temperature from four regions in the United States: Eastern, Central, Southern, and Western, excluding Alaska and Hawaii from the period of 2010 - 2020. Average monthly returns from the year 2010 – 2020 will also be used, which were collected from two stock exchanges in the United States: the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). There is a total of 132 months from the period of 2010 – 2020.

On the New York Stock Exchange (NYSE) data, the lowest change was -16.79% in March 2020 when COVID-19 was declared as a pandemic by the World Health Organization (WHO). The highest average monthly return was 12.69% in November 2020, following the progress of COVID-19 Vaccines in the United States and the election of President Joe Biden. This was also the highest record not only since the pandemic started but also since the last ten years. For the National Association of Securities Dealers Automated Quotations (NASDAQ) data, when the World Health Organization (WHO) declared the pandemic in March 2020, the average monthly return fell to -10.12%. The average monthly return then rose to 15.45% the following month in April 2020, making it the highest average monthly return in the last ten years. Multivariate studies reveal no decisive relation between temperature levels and stock market returns, illustrating the offsetting effects between the theory of positive correlation of temperature changes and stock market returns and the theory of negative correlation of temperature changes and stock market returns.

Numerous studies have shown that there is a positive correlation between weather and stock market returns. However, weather changes might also not impact an investor’s trading behavior. A study found that weather and temperature changes do not affect stock market returns directly, which means that there is no significant correlation between sunshine and high stock returns. Chuang, et. al., (2020) found that the effects of weather depend on how sensitive individuals to weather changes. Investors might still successfully trade and generate high returns even though they are in a region where it is cold and gloomy.

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