The Influence of Moscow Weather on Stock Returns

This thesis studies the relation between index returns and weather conditions in Russia. Psychology and behavioral finance have shown that investors are like anyone unconsciously influenced by external and internal factors that translate into a mood which in turn modifies their cognitive processes and risk tolerance level. Weather is the best available proxy for one’s mood as bad weather is associated with depressive moods and good weather with optimistic moods, which should respectively result in a higher and lower risk aversion. Weather also affects everyone indiscriminately. Thus, one can hypothesize that weather conditions should have a significant impact on index returns. However, this study shows that although weather seems to influence index returns in the expected way no clear and significant relation can be drawn. Thus, using weather as variable for strategy should be of no interest for traders and investors