Why Investors Should Watch The Weather Channel

When the sun shines on Wall Street, traders and investors in the area grow more optimistic and tend to bid up stock prices. That's the conclusion of a study by financial economist Edward M. Saunders Jr. of the University of Massachusetts that appears in the current issue of the American Economic Review.

In an analysis of daily weather reports for New York City and the movements of the Dow Jones industrial average from 1927 through 1989 and stock prices on the principal stock exchanges from 1962 through 1989, Saunders found that very sunny weather and totally cloudy weather clearly affected stock prices. That is, on average, stock prices were stronger on sunny days than on cloudy days, and the frequency of daily index upticks was higher.

Saunders observes that the weather effect diminished in the 1980s, perhaps because of the advent of indexed futures trading in Chicago and growing foreign influences on security prices. But all other factors being equal, a sunny day on Wall Street still seems like a good day to buy stocks.

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