The Real Effects of Weather on Firm Performance, Analyst Forecasts, and Stock Prices

This paper examines the real effects of weather on firm performance, using temperature as our proxy for weather. The relation between temperature and performance depends on season, industry, geographic location, and is often firm-specific. Therefore, to test this relation we adapt a measure of firm-quarter-specific weather sensitivity to calculate the predicted effect of weather on quarterly firm sales (Weather Impact). We first document that future quarterly sales performance is partially predicted by our measure. We then show that our measure is associated with both analyst forecast accuracy and announcement period abnormal returns. Overall, our results suggest that market participants do not fully incorporate the predictable real effects of weather into their expectations of firm performance