In this study, we employ a recently developed econometric technique of the threshold model with the GJR-GARCH process on error terms to investigate the relationships between weather factors and stock market returns in Taiwan using daily data for the period of 1 July 1997–22 October 2003. The major weather factors studied include temperature, humidity, and cloud cover. Our empirical evidence shows that temperature and cloud cover are two important weather factors that affect the stock returns in Taiwan. Our empirical findings further support the previous arguments that advocate the inclusion of economically neutral behavioral variables in asset pricing models. These results also have significant implications for individual investors and financial institutions planning to invest in the Taiwan stock market.
Physica A: Statistical Mechanics and its Applications 364, pp.343-354