The Impact of Weather on Stock Volatility and Returns on the Russian Market

The paper is dedicated to the analysis of the weather influence on the investors’ behavior in the case of the Russian stock market (Moscow Stock Exchange). The research examines whether investors’ decisions (to the IMOEX index selling or buying) can be driven by their mood, which is related to the weather parameters such as Сloudiness, Wind Speed, Pressure, Humidity and Temperature. The weather influence on returns coefficients is estimated by series of OLS regression models. The effect on volatility is estimated by the widely known GARCH-model with external weather parameters. As a result, the hypothesis about weather impact on returns is strongly rejected for the pressure, humidity and temperature parameters. There was found the significant influence for the «extreme» values of Wind (7-10 m/s) and Cloudiness (80 to 100%), but, according to the results, the observed effect is opposite to the expected: high wind speed and cloudiness lead to the positive index changes. Since the significance level for the coefficients is only 10%, we suggest, that this outcome can be also taken as the hypothesis rejection. Under the volatility analysis there is found a low effect of the temperature changes in the midday on variance. Other variables are not influential.