Extreme heat and stock market activity

We aim to advance our understanding of the adverse effects of extreme temperatures by examining the extent to which high temperatures affect stock market activity. We address this question by analyzing the trading volumes on the French stock market on days when the weather in Paris is excessively hot over the period 1995-2019. Our empirical analyses show that, on average, trading volumes fall significantly (between 4% and 10%) when maximum daily temperatures exceed 30 degrees C (86 degrees F). The observed negative association is remarkably robust to a battery of alternative analyses such as bin tests, event studies, and time-series regressions controlling for any seasonal effects and financial market conditions. From a theoretical perspective, this study contributes to the literature on behavioral finance by demonstrating the existence of a hot weather effect on financial markets. It also offers important managerial and public policy implications.

Automated summary

The study found that trading volumes on the French stock market significantly decrease when the maximum daily temperatures in Paris exceed 30 degrees Celsius. This negative association is robust to various alternative analyses and has implications for behavioral finance literature and public policy.