Stock Returns, weather, and air conditioning.

This study investigates the relationship between stock returns and local weather through a new channel-the influence of the air-cooling system installed in the New York Stock Exchange (NYSE). To our knowledge, we are the first to employ the use of air conditioning to examine whether and how weather, especially excessively high temperature, and other factors affect stock returns. Using data for 1885-1914, we show that lower Dow Jones Average (DJA) returns were significantly associated with hotness before the NYSE trading rooms were equipped with the cooling system in 1903, whereas this correlation is largely weakened afterward. We also find that before the introduction of the air-cooling system, the negative effect of high temperatures on stock returns was stronger when the precipitation was lower. We obtain consistent results when controlling for the calendar anomalies such as the May-to-October effect, the Monday effect, and the effect of macroeconomic conditions.