The Effect of Mood on Stock Returns

Empirical findings in finance and experimental evidence from psychology suggest that emotions significantly influence human decision-making. The sentiments of investors have been proved to affect stock market returns. Experimental evidence in psychology suggests that the weather has an impact on agents’ mood, which could, in turn, creates repercussion in financial markets. The purpose of this study is to examine whether meteorological conditions affect stock returns and if the results are valid for different countries. In particular, two distinct countries, namely Italy and the Netherlands, are analysed. The hypothesis is supported by previous studies such as Saunders (1993) and Hirshleifer and Shumway (2003). However, the results of this study differ from previous researches. The main finding is that the Wind Speed strongly influences the returns of the stock market index during the opening hours, and the other weather variables are not significant after controlling for this factor