Want to improve your chances on the stock market? This may be a sign of good things to come.

A new study shows that sunshine levels have a big effect on how buyers bid on the stock market.

The study investigated the correlation between sunny weather, investor performance, and subsequent seasoned equity offerings (SEOs). These offerings, which provide discounted shares, are crucial for modern economies and serve as an effective means for companies to raise funds.

An international team of researchers, which included members from the Centre for Innovative and Sustainable Finance at the University of Portsmouth, examined weather station data to identify the periods during which climate conditions exert the greatest influence on investors. Their aim was to determine whether decisions made by investors were influenced by the intensity and duration of sunshine.

The data showed that Investors’ bids were greater when the weather was good, and share discounts were less in the main market as a result.

In fact, bid discounts decreased by 2.4 percent with a one standard deviation rise in sunlight intensity and by 3.33 percent with a one standard deviation increase in sunshine duration.

“With sunny weather, often come good spirits,” according to Professor Jia Liu from the University of Portsmouth, “which in many circumstances is a positive, but that’s not the case with financial decision-making.

“When the sunshine intensifies,” warns the professor, “bidders become overly optimistic and less risk-averse, which can lead to higher bid prices for seasoned equities.”

Previous studies have demonstrated that meteorological factors, particularly the amount of sunlight one is exposed to, can impact an individual’s emotional state and outlook. These weather-related moods have been demonstrated to have an impact on various decisions, including the selection of a car by a buyer, the prices of art at auction, and the inclination to take risks in a lottery.

Twenty years ago, Edward Saunders was the first to establish a correlation between weather and investment behavior on Wall Street.

“Saunders inspired our study,” adds Professor Liu.

The outcomes of his study provided compelling backing for the idea that the mindset of investors has an impact on the value of assets. However, even though there is significant proof that this relationship has a considerable economic effect, little research has been conducted on the link between meteorological conditions and the performance of the stock market in the primary market, according to the author. Saunders’ research, in particular, only explored stock prices in the secondary market.

Therefore, they decided to take it a step further by examining the conduct of individual investors in the primary market.

“The China Securities Regulatory Commission (CSRC) requires that SEO issuers disclose detailed investor bidding information during the SEO auction process, providing us with a unique opportunity to examine the effect of sunshine-induced mood on investors’ decisions in the primary market,” reveals Professor Shenghao Gao from the Southwestern University of Finance and Economics, China.

Over the period of 2006 to 2019, the team collected a sample of 1,625 auction-style SEOs, including 28,321 bids from 2,978 investors. They not only found a link between the amount of sunlight and a bidder’s decision-making, but they also discovered that this effect is magnified when a company’s SEO offering is more complex or when its corporate background is unfamiliar to the investor.

According to the paper, which was published in the Journal of Corporate Finance, these findings have crucial implications for investors in the primary market. They must be cognizant of the impact that meteorological conditions can have on their investment decisions.

Professor Liu stated that it is essential to make investors aware that they tend to become more optimistic about their investments during periods of sunny weather. This inclination towards optimism may lead them to take risks that are not justifiable by the actual value of the assets. Therefore, investors should take this factor into account when bidding for shares, or else they may incur losses.

The implications of this study are significant for both policy and practice. The increasing instability of weather patterns around the globe, coupled with the proven connections between climatic conditions and investors’ behavior, make this issue more relevant in an interconnected financial world.

It is crucial to understand this phenomenon to maintain market stability, particularly since the advent of climate change may increasingly destabilize investors’ and market-makers’ judgments, with unforeseen consequences for global trade.

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