The effect of weather on the European stock market The case of Dow Jones Sustainability Europe Index

Purpose - The purpose of this paper is to ascertain whether weather variables can explain the stock return reaction on the Dow Jones Sustainability Europe Index by employing a number of macroeconomic indicators as control variables. Design/methodology/approach - The authors incorporate the generalized autogressive conditional heteroskeasticity model in methodology for the period August 26, 2009 to May 30, 2014 using daily data. Findings - The empirical results indicate that not only do changes in humidity and wind levels seem to affect positively the European stock market but changes in returns oil and gold prices as well. However, the results show that the volatility of the US dollar/Yen exchange rate and ten-year bond value exerts significant negative impact on companies' stock returns. Originality/value - This study adds to the international literature by documenting the impact of weather variables on socially responsible companies.