Weather Effects on Industrial Stock Index Returns and Volatilities: Evidence from Korean Stock Market

Abstract

This study empirically investigates weather effects on Korean stock index returns and market volatility based on the GJR-GARCH-X model. We focus on the issue about whether the weather effect is associated with financial deregulation and foreign investors’ transactions, which should not be affected by the weather conditions in Seoul City. To explore the weather effects by controlling for foreign investors’ trading, we employ daily stock index data and weather indicators (cloud cover, precipitation, sunshine hours, snow, and humidity) during the period from 1981 to 2016. Our empirical results suggest that there is little evidence for weather effects on KOSPI and stock returns by industry listed in the Korea Stock Exchange even if Korean financial market deregulations in 1997 increases foreign investors’ trading, but there is some evidence for weather effects on market volatilities.

Weather, investor psychology and stock returns: evidence from Fiji's stock market

“…Keef and Roush (2002) point out that temperature has little impact on daily stock market returns in New Zealand. Cin et al (2020) also note that there is little evidence that weather affects industry stock returns in Korea Stock Exchange. However, Jiang et al (2019) find that extreme weather significantly influences Shenzhen stock market returns.…”