The effect of weather on stock market returns: Evidence from African stock markets

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Increasing market volatility and the profound impacts of climate change require a comprehensive understanding of how weather affects stock market performance. This paper aims to investigate the effect of eight weather conditions (clear sky, precipitation, pressure, temperature, relative humidity, specific humidity, wind direction, and wind speed) on the returns of major African stock markets (Botswana, Cote d’Ivoire, Kenya, Mauritius, Morocco, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Tunisia, Uganda and Zambia) over the period from January 2, 1998 to December 30, 2023. Using daily data and a GJR-GARCH (1,1) model with an AR process, the findings reveal that weather conditions influence all African stock markets. Specifically, the markets are categorized according to their sensitivity to weather conditions into three groups: highly affected (5-7 coefficients with 0.001≤ p <0.05), moderately affected (3-4 coefficients with 0.001≤ p <0.05), and slightly affected (1-2 coefficients with 0.001≤ p <0.05). Mauritius and Uganda emerge as the most weather-sensitive countries, with significant impacts (0.001≤ p <0.05) for seven of the eight weather conditions studied. Understanding the relationship between weather conditions and African stock markets enables investors to adjust their strategies and better manage their portfolios to optimize return opportunities. Ultimately, this study provides essential insights for investors, portfolio managers, and financial decision-makers, aiding them in better assessing the risks and opportunities associated with weather conditions in African stock markets, thereby enhancing their decision-making and investment management.

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    • Figure A1. Series evolution of prices
    • Figure A2. Series evolution of returns
    • Table 1. Effect of weather on stock returns
    • Table 2. Data time frame
    • Table 3. Weather variables employed in this study
    • Table 4. Descriptive statistics of African stock market data I
    • Table 5. Descriptive statistics of African stock market data II
    • Table 6. Descriptive statistics of African stock market data III
    • Table A1. Presentation of African stock markets
    • Table A2. Weather effect on stock returns
    • Conceptualization
      Fouzia Alloul, El Mehdi Ferrouhi
    • Data curation
      Fouzia Alloul
    • Formal Analysis
      Fouzia Alloul, El Mehdi Ferrouhi
    • Investigation
      Fouzia Alloul
    • Methodology
      Fouzia Alloul
    • Project administration
      Fouzia Alloul, El Mehdi Ferrouhi
    • Resources
      Fouzia Alloul
    • Software
      Fouzia Alloul, El Mehdi Ferrouhi
    • Supervision
      Fouzia Alloul, El Mehdi Ferrouhi
    • Validation
      Fouzia Alloul, El Mehdi Ferrouhi
    • Visualization
      Fouzia Alloul, El Mehdi Ferrouhi
    • Writing – original draft
      Fouzia Alloul, El Mehdi Ferrouhi
    • Writing – review & editing
      Fouzia Alloul, El Mehdi Ferrouhi