1. Background and Literature
• Lower temperatures lead to higher stock market returns (Cao & Wei, 2005)
• Crime and other aggressive behaviors increase during heatwaves in cities
(Anderson, 1989)
• Temperature can change an individual’s mood - Keller et al. (2005) associated hot
weather with decreased mood and pleasant spring weather with increased affect,
better memory, and broadened cognition
• Those with higher levels of happiness are more likely to invest in the stock market
(Moore and Chater, 2003)
• Aggressive/hostile behavior is associated with higher risk taking (Zuckerman &
Kuhlman, 2000)
• Birds take more risk when foraging in colder weather (Curaco et al., 1990)
• No research in humans on link between weather and risk taking
Measures
Balloon Analog Risk Task (BART) (Lejuez et al., 2002)
• Measures risk preferences by presenting participants with a computer simulation of
pumping air into a series of balloons
• For each pump, the participant receives five cents of virtual money. Once the
participant thinks she has reached the max amount of pumps for a given balloon,
she can cash out and add the money accumulated for that balloon to her total
winnings. If the balloon pops, she will lose all money for that single balloon. Each of
the ten balloons has a different capacity.
University of Virginia Econlab online Investment Game
• Participants were presented with four investments and $10 per investment
• Choice of risky or safe asset
Safe asset carried no risk and paid out exactly what was invested
Risky asset gave a 50/50 chance of wiping out investment or paying 2x
(investment 1) 2.5x (investment 2) 3x (investment 3) 4x (investment 4)
• Goal is to maximize total money over all investments
Methods
• Participants were made up of 43 undergraduate students from Colgate University in
Hamilton, NY
• Gender composition: males (n=12) Females (n=29)
• Racial composition: Asian (n=4) Black (n=3) Hispanic (n=4) White (n=30), Mixed Race (n=2)
• They were awarded a half hour of research credit
• Signed up through online system. Experiment titled “An Investment and Risk taking
Study in College Students: A fun series of games to assess your investment prowess”
• Trials were conducted in a climate controlled environment in the Psychology
department building
1. Read and signed consent form
2. Balloon Analog Risk Task (BART)
3. University of Virginia Econlab online investment game
4. Quick online form for gender, age, class year, and race
• A risk profile variable was generated by dividing the total number of pumps and total
amount invested in a risky asset by their respective means and summing the values.
Results were logged to interpret as percent instead of units, to control for outliers,
and create an understandable risk index
Results
A significant negative relationship was found between the outdoor
temperature and risk taking. For every additional degree Fahrenheit rise
in temperature, participants took .473 percent less risk, β= -.00473, t(42)
= -2.04, p=.047. Temperature accounted 9.5 percent in the overall
variation in risk taking R2 = .095, F(1,40) = 4.18, p < .047.
The addition of precipitation (snow and rain), or cloud cover variables
made model statistically insignificant and were excluded due to their
collinearity with temperature.
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Conclusion
• Temperature and weather can affect the amount of risk people are
willing to take
• With many other large determinants of risk taking such as personality,
beliefs, and values, temperature accounted for almost 10 percent in
the overall variation, a surprisingly strong result
• This research helps clarify the potential link between cold weather and
high stock market returns
If people take more risk when it is cold, it makes sense that the
stock market rises as equities are considered relatively risky
investments
• Negative relationship between temperature and risk could be due to
evolutionary forces: hunter gatherers would likely be risk prone when
anticipating an energy deficit (cold weather) – similar behavior is found
in animals
• These results have important repercussions for everyday life as well as
asset markets
References
Anderson, C. A. (1989). Temperature and aggression: ubiquitous effects of heat on occurrence of human violence. Psychological bulletin, 106(1), 74.
Bollen, J., Mao, H., & Zeng, X. (2011). Twitter mood predicts the stock market. Journal of Computational Science, 2(1), 1-8.
Cao, M., & Wei, J. (2005). Stock market returns: A note on temperature anomaly. Journal of Banking & Finance, 29(6), 1559-1573.
Isen, A. M., & Patrick, R. (1983). The effect of positive feelings on risk taking: When the chips are down. Organizational behavior and human performance, 31(2), 194-202.
Keller, M. C., Fredrickson, B. L., Ybarra, O., Côté, S., Johnson, K., Mikels, J., ... & Wager, T. (2005). A warm heart and a clear head the contingent effects of weather on mood and
cognition. Psychological Science, 16(9), 724-731.
Scarpa, A. (2015). Physiological Arousal and Its Dysregulation in Child Maladjustment. Current Directions in Psychological Science, 24(5), 345-351.
Schneider, F. W., Lesko, W. A., & Garrett, W. A. (1980). Helping Behavior in Hot, Comfortable, and Cold Temperatures:" A Field Study". Environment and Behavior, 12(2), 231.
Sinclair, R. C., Mark, M. M., & Clore, G. L. (1994). Mood-related persuasion depends on (mis) attributions. Social Cognition, 12(4), 309.
Zuckerman, M., & Kuhlman, D. M. (2000). Personality and risk‐taking: common bisocial factors. Journal of personality, 68(6), 999-1029.
A Frosty Relationship: Risk Taking and the Weather
by Tobias Lescht
Temperature (degrees farenheit)
RiskIndex
VARIABLES Risk
Temperature -0.00473**
(0.00230)
Constant 0.876***
(0.0960)
Observations 42
R-squared 0.095