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Weather Effects on Stock Returns and Volatility in South Asian Markets

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Abstract

We study the effect of mood-proxy variables on index returns and volatility in six South Asian markets. Our mood-proxy variables include six weather (temperature, humidity, cloud cover, air pressure, visibility, and wind speed), three weather indicator variables (fog, thunder storm and rain or drizzle) and two biorhythmic variables (SAD and lunar phases). We adopt a robust approach and attempt to select the best parsimonious econometric model for each market. Our findings suggest that mood-proxy variables have some convincing influences in South Asian capital markets. In some instances, these variables are influencing returns while in other instances they are influencing volatility.

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Notes

  1. Yuksel and Yuksel (2009) for instance, who include Indian market, among others, in their sample and test the effect of temperature. Similarly, Mirza et al. (2012) examine Pakistani markets for the temperature effects. Other studies that include Indian and Pakistani markets among others, test the impact of lunar phase Yuan et al. (2006), temperature and Sad effect Jacobsen and Marquering (2008).

  2. Monday effect refers to lower returns on Monday than other trading day in a week.

  3. Tax effect refers to stock returns pattern at turn of the tax year, typically higher returns in the first month (January or July) of a new tax year.

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Authors and Affiliations

  1. Department of Banking and Finance, G.C. University, Faisalabad, Pakistan

    Muhammad Fayyaz Sheikh

  2. Warwick Business School, University of Warwick, Scarman Road, Coventry, CV4 7AL, UK

    Syed Zulfiqar Ali Shah

  3. Department of Business Administration, University of Sargodha, Sargodha, Pakistan

    Shahid Mahmood

Authors
  1. Muhammad Fayyaz Sheikh
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  2. Syed Zulfiqar Ali Shah
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  3. Shahid Mahmood
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Corresponding author

Correspondence to Muhammad Fayyaz Sheikh.

Appendix

Appendix

See Figs. 2, 3, 4, 5, 6, 7, 8, 9 and 10.

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Temperature

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Humidity

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Cloud cover

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Air pressure

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Deseasonalized air pressure

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Fig. 8
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Visibility

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Fig. 9
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Wind speed

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Fig. 10
figure 10

SAD

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Sheikh, M.F., Shah, S.Z.A. & Mahmood, S. Weather Effects on Stock Returns and Volatility in South Asian Markets. Asia-Pac Financ Markets 24, 75–107 (2017). https://doi.org/10.1007/s10690-017-9225-2

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  • DOI: https://doi.org/10.1007/s10690-017-9225-2

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