Tuesday, August 16, 2005

Sunshine and the stock market

"Sunshine on my shoulders makes me happy
.... Sunshine almost always makes me high"
~ John Denver, "Sunshine on my shoulders"

On sunny days we feel good - that's a recurring theme in music, poetry, and literature. When we feel good, whether because of sunshine or some other factor, does that change how we deal with risk? Some enterprising researchers have asked that question and come up with fascinating findings. They discovered that on sunny days the stock market tends to go up.

See this quote from Hirshleifer and Shumway's 2001 working paper called "Good Day Sunshine: Stock Returns and the Weather". This paper was later published in the 2003 Journal of Finance:
The magnitude of the sunshine effect is substantial. For example, in New York City, the annualized nominal market return on perfectly sunny days is approximately 24.8% per year versus 8.7% per year on perfectly cloudy days.

I've created a daily updated sunshine index. See the full story here. More emotion-related indicators will be posted in the future. Sunshine is just the beginning of the story.


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