Open AccessStock Market Returns and Weather Anomaly: Evidence from an Emerging Economy
Author(s) -
Hammad Hassan Mirza,
Muhammad Jam,
Kausar Ali Asghar,
Naveed Mushtaq
Publication year - 2012
Publication title -
journal of economics and behavioral studies
Language(s) - English
Resource type - Journals
ISSN - 2220-6140
DOI - 10.22610/jebs.v4i5.323
Subject(s) - autoregressive conditional heteroskedasticity , stock exchange , stock market , economics , heteroscedasticity , financial economics , arbitrage , stock market index , efficient market hypothesis , stock (firearms) , volatility (finance) , econometrics , finance , geography , context (archaeology) , archaeology
Financial economists believe that the arbitrage forces in the market are the main reason of market efficiency and these forces are the fundamental concept of efficient market hypothesis (EMH). During last few years, various theoretical and empirical evidences have been presented to support the work of financial modeling for the markets with less than rational investors whose trading strategies are based on psychological factors like mood and emotions. Weather condition is among the substantial factors affecting investors’ mood and emotions. Present study investigates the impact of temperature on stock market returns in emerging economy of Pakistan. Using the daily temperature records and stock market indices of Karachi and Islamabad, the study has employed auto regressive (AR) – generalized autoregressive conditional heteroscedasticity (GARCH) model from 2006 to 2010. Based on AR (1)-GARCH (1, 1) estimation the study has found that weather temperatures of both Karachi and Islamabad are negatively related with Karachi Stock Exchange (KSE) and Islamabad Stock Exchange (ISE) index returns, respectively.