The effect of weather on investment returns in common stocks - an applied comparative study of the Iraqi and Jordanian stock exchanges
Keywords:
Investment returns, common stocksAbstract
Weather can be one of the market anomaly reasons, so should find
evidence for it against the efficient market theory. Psychological studies support
an existence of the weather effect on mood, which in turn will effect on all
decisions of investors and their behavior in the financial market, despite the fact
that classical economic theories assume that the preferences of the investor are
fixed and fully rational and do not affected by mood. The recent studies and
literature have indicated that weather causes a given mood status and this in
turn will effect on the risk and return assessments and on stock prices in many
global stock markets. The purpose of this study is to see whether the weather
affects stock returns. This study examines the impact of weather on stock returns
of the Jordanian and Iraqi Stock Exchange with the aim of enhancing the
efficiency of the market by identifying the source of the irrationality of the
market, compare the performance of the two markets to see how the impact of
weather on the behavior of investors and its reflections on the stocks returns, in
order to identify which one of the weather variables will effect on the stocks
returns. This study was based on the daily closing prices for the Iraqi and
Jordanian market indexes throughout the period (28 11 2013 - 27 2 2014),
which corresponds to the timing of the weather variables observations which are
represented by a level of cloudiness, temperature, humidity level, wind speed,
and showed its impact on the returns of ordinary stocks listed on the two
markets. This study reaches out to number of conclusions, the most important
among them is existence of a significant relationship between temperature and
investment returns of ordinary stocks listed on the Iraqi market. In regard to
Amman Stock Exchange, it has been shown that there is a significant
relationship between the level of cloudiness and investment returns of ordinary
stocks listed on the Jordanian market. This study reaches out to number of
recommendations including the need to increase investment awareness of
participants in the Iraqi and Jordanian markets and make them aware that they
must not be affected by psychological factors that leaves negative effects on the
overall trading activity in the market and unlike the logical fundamentals of the
efficient financial markets principles.
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