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The Sunshine Effect: Financial Markets Respond to the Weather


The reaction of the stock market to corporate earnings surprises are higher when earnings are announced on very sunny days in New York City, according to a recent study by a Fordham professor.

The discovery of this “sunshine effect” was originally published in the spring 2009 issue of the Journal of Accounting, Auditing and Finance by John J. Shon, Ph.D., assistant professor of accounting, and co-author Ping Zhou, Ph.D., vice president of Neuberger Berman.

Their paper, “Are Earnings Surprises Interpreted More Optimistically on Sunny Days? Accounting Information and the Sunshine Effect,” also found negative effects for days that were rainy and/or snowy. The paper also found that the sunshine effect:

• is most prominent for firms that are more likely to be followed by naive investors and less prominent for firms that are more likely to be followed by sophisticated investors;

• causes average bid-ask spreads to be lower on sunny days relative to cloudy days, suggesting that market-makers may be a contributing factor; and

• exists for firms traded in the NYSE and AMEX, but not NASDAQ.

“Investors who spark these reactions are, truly, high on the weather,” said Shon, an assistant professor of accounting and taxation at Fordham. “These sunshine-induced overreactions and underreactions are reversed within days.”


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