Weather Induced Employment Growth Surprises and the Cross-Section of Local Stock Returns

We find that the weather induced local employment growth surprises are positively related to the cross section of future local stock returns for up to three months without subsequent reversals. In comparison, neither weather nor reported employment growth can predict future returns. This return predictability is stronger in more weather sensitive industries, when we use weather station data closer to the county center, and for firms with lower financial reporting transparency. The employment growth surprises are also positively related to future earnings surprises. Our results are consistent with the investor underreaction explanation