Weather effects on the returns and volatility of the Shanghai stock market

This study investigates the weather effects oil returns as well as volatility in the Shanghai stock market In order to analyze the influence of the opening of B-share market to domestic investors, it is assumed that domestic investors are more sensitive to the Shanghai local weather than foreign investors. In doing so. extreme weather condition dummies are generated by using the 21-day and 31-day moving average and its standard deviation. Empirical analysis provides two key results regarding weather effects First, the weather effect exists in the A-share returns. but does not exist in the B-share returns over the whole period. In addition. the post-opening period shows the strong weather effect oil B-share returns only, indicating that the market openness to domestic investors results in the weather effect. Second. the weather effect has a strong Influence on the volatility of both A- and B-share returns Similar to the case of returns, the weather effect on volatility is explained by the openness of B-share market. (C) 2009 Elsevier B.V. All rights reserved.