YET ANOTHER REASON to worry about global warming: There's new proof that the stock market rises when it's cold outside.

Uncomfortably cold weather seems to stimulate aggressiveness and a willingness to take risks, contend Melanie Cao and Jason Wei, professors of finance at York University and the University of Toronto. By contrast, apathy prevails in the heat, the team reports in the Journal of Banking and Finance.

The two Torontonians sorted through decades of data from eight major stock exchanges around the world. Whether they looked at Taiwan or Sweden, Australia or the United States, they found that the lower the temperature, the higher the stock returns. In general, cool summer days beat real scorchers, and exceptionally frigid winters make for exceptionally high returns.

Their work is part of the growing field of behavioral economics, which seeks to explore the important role emotions play in financial decisionmaking. Because it's difficult to measure the emotions of an entire stock-buying nation, behavioral economists regard weather as an indicator of mood, as temperature has previously been shown to affect mood, which in turn affects behavior. Sunny days, for example, are also linked to high stock prices, possibly because sunshine increases optimism.

Temperature-stimulated mood changes have the biggest impact on the price of stock with small capitalization. But the effect applies equally well to large-cap stocks. What's not clear is why the price-weather relationship holds even when temperature changes are not extreme.--LA

COPYRIGHT Sussex Publishers, Inc.
COPYRIGHT Gale Group

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