Stormy weather

Gregory Nemec

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If your normally upbeat stockbroker calls unexpectedly and advises you to sell what had seemed to be a solid investment, best to do two things before agreeing. First, check the Dow forecast and the stock fundamentals; second, check the weather.

“Bad weather not only makes individual investors more pessimistic about stock valuations and increases the likelihood they’ll want to sell, but we found that when it’s raining or just cloudy in New York, professional, institutional investors tend to behave the same way,” says William Goetzmann ’78, ’86MBA, ’90PhD—lead author of a new study, currently under review for publication, that links mood and markets. “We were surprised that the weather effect was so ubiquitous.”

Goetzmann and his colleagues drew their data largely from a long-term and ongoing monthly survey on investor sentiment, comparing those numbers with cloud cover statistics and information about the price movement of stocks. Across the entire investment universe, the drop in stock prices due to cloudy weather was minuscule. But the researchers found a much bigger cloud cover impact on those that are not traded very often. “Here, we found a small but significant decline—as much as three percent—in the market index,” he says. “It’s short-lived, just one cloudy day, but it’s real.”

Don’t, however, try to time the market by the weather forecast. “No consulting company is going to be able to make money based on weather data,” says Goetzmann.