Extreme Heat and Stock Market Activity

Jonathan Peillex (1, 2) , Imane El Ouadghiri (3, 4) , Mathieu Gomes (5) , Jamil Jaballah (6)

1 ICD International Business School Paris
2 LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286
3 PULV - Pôle Universitaire Léonard de Vinci
4 EconomiX
5 CleRMa - Clermont Recherche Management
6 EESC-GEM Grenoble Ecole de Management

We aim to advance our understanding of the adverse effects of extreme temperatures by examining the extent to which high temperatures affect stock market activity. We address this question by analyzing the trading volumes on the French stock market on days when the weather in Paris is excessively hot over the period 1995-2019. Our empirical analyses show that, on average, trading volumes fall significantly (between 4 percent and 10 percent) when maximum daily temperatures exceed 30°C (86°F). The observed negative association is remarkably robust to a battery of alternative analyses such as bin tests, event studies, and time-series regressions controlling for any seasonal effects and financial market conditions. From a theoretical perspective, this study contributes to the literature on behavioral finance by demonstrating the existence of a "hot weather" effect on financial markets. It also offers important managerial and public policy implications.

Mots clés: behavioral finance; global warming; high temperatures; market activity; trading volume

Domaines: Économie et finance quantitative [q-fin]; Finance [q-fin.GN]; Économie et finance quantitative [q-fin]; Gestion de portefeuilles [q-fin.PM]; Économie et finance quantitative [q-fin]; Finance quantitative [q-fin.CP]; Économie et finance quantitative [q-fin]; Econométrie de la finance [q-fin.ST]; Sciences de l'Homme et Société; Economies et finances; Sciences de l'environnement; Environnement et Société

Jonathan Peillex, Imane El Ouadghiri, Mathieu Gomes, Jamil Jaballah. Extreme Heat and Stock Market Activity. Ecological Economics, 2021, 179, pp.106810. ⟨10.1016/j.ecolecon.2020.106810⟩. ⟨hal-02935431⟩