Does the weather have impacts on returns and trading activities in order-driven stock markets? Evidence from China

We study the association between weather-related mood factors and stock index returns in an order-driven market, the Shanghai Stock Exchange (SSE) of China. Our results indicate that asset returns are unaffected by changes in mood introduced by factors including the weather and the onset and recovery from SAD. In contrast, many of these variables are strongly correlated with a reduction in market turnover and liquidity, consistent with investor mood driving variations in market activity. Overall, we show that in an order-driven market, environmental impacts on sentiment are likely to affect trading activities, but not returns.