Hirshleifer, David, and Tyler Shumway, “Good Morning Sunshine:  Stock Returns and the Weather,” The Journal of Finance, Vol 58, No 3 (2003), 1009-1032.

• Weather (days of sunshine) is a truly exogenous variable
• Sunshine in the cities of 26 countries’ largest stock exchanges strongly and statistically significantly predicts stock returns between 1982 and 1997
• After controlling for days of sunshine, other weather patterns such as rain and snow have no effect.
• Trading based on the weather would be optimal for a trader facing very low transaction costs, but even moderate costs would generally prohibit such a strategy.
• These results are consistent with a theory of mood affecting behavior, but are not consistent with the theory of rational actors.

Notes:

• Table III:  The joint betas are significant.  This might be driven by the large but insignificant betas for Buenos Aires and Rio de Janeiro (Sao Paolo; see below)
• Hirshleifer & Shumway mistakenly collected weather data for Rio de Janeiro, while their return data comes from the Brazil’s largest stock exchange (Sao Paolo).