臺大管理論叢 NTU Management Review VOL.30 NO.3

Time Paths of Weather-Induced Mood Effects on Stock Returns 46 1. Introduction From a traditional perspective of efficient markets, weather can affect stock prices and returns if it drives the fundamentals of firms such as agriculture or other weather- related firms. Therefore, weather conditions in areas where stock markets are located or where investors are domiciled have no role in the price formation process. However, from a behavioral finance perspective, their roles are possible (Hirshleifer and Shumway, 2003). Weather influences the moods of investors (e.g., Howarth and Hoffman, 1984). The moods at the time that investors make decisions influence their behaviors; therefore, the moods of investors can cause stock returns and volatility to deviate from their fundamental values (Loewenstein, 2000). In their experiment and psychological test of financial decisions, Bassi, Colacito, and Fulghieri (2013) find that good weather induces investors to act with risk-taking behavior. Moreover, weather can affect risk tolerance because of the effects on the moods of investors. Prices and returns rise or fall due to changing risk preference, which leads marginal investors to lower or raise discount rates (Mehra and Sah, 2002). Moreover, prices and returns can change due to mood misattribution, which causes marginal investors to incorrectly associate good or bad weather and mood with good or bad prospects of the assets (Hirshleifer and Shumway, 2003). Aggregate behaviors of investors pressure stock prices to deviate from their fundamental levels, hence constituting the weather-driven mood effects or, in short, weather effects that relate stock returns to weather conditions (e.g., Frühwirth and Sögner, 2015). The first weather study is conducted by Saunders (1993). For the U.S. market, the researcher reports that cloud cover outside Wall Street have a negative relationship with stock returns. After Saunders (1993), weather effects have been studied extensively using national and international market data. Cao and Wei (2005) review early studies, while Frühwirth and Sögner (2015) make recent contributions. Most studies reveal a significant relationship between weather and stock returns. The literature is expanding especially for emerging markets such as Thailand (Khanthavit, 2017) and Vietnam (Thach, Van Le, and Van Diep, 2019). Weather-sensitive investors play a key role in the price formation process. Loughran and Schultz (2004) provide evidence of weather impacts on general investors. For the U.S. market, the researchers report a drop in localized trading volume of stocks whose headquarters were in blizzard struck cities compared to stocks whose headquarters were in