Weather, Stock Returns, and the Impact of Localized Trading Behavior

We document by several methods that trading in Nasdaq stocks is localized, but find little evidence that cloudy weather in the city in which a company is based affects its returns. The first evidence of localized trading is that the time zone of a company's headquarters affects intraday trading patterns in its stock. Second, firms in blizzard-struck cities see a dramatic trading volume drop compared to firms in other cities. Third, the Yom Kippur holiday dampens trading volume in companies located in cities with high Jewish populations. Despite the strong evidence of localized trading, cloudy conditions near the firm's headquarters do not provide profitable trading opportunities.