UMN Expert: Unpleasant weather’s impact on financial markets

Joshua Madsen holding an umbrella.

This April, companies across the nation and the world will issue their first quarterly reports for 2018. How equity analysts—who play key roles in producing projections, research reports and stock recommendations—respond to those reports can be influenced by something as simple as the weather.

Joshua Madsen, assistant professor in the Carlson School of Management at the University of Minnesota, studied the impact weather can have on the financial markets and is available for comment.

Joshua Madsen, Ph.D.

“Weather doesn’t affect computers or algorithms. It impacts people. We decided to investigate ways that weather impacts, through people, financial markets.

“To do this, we turned to equity analysts. The result of [analysts’] work is publicly displayed and they have similar incentives: provide valuable information to their clients. Because all analysts following any particular firm are typically located across the country, they often experience different weather conditions when processing a company's earnings announcement.

“By exploiting that difference, we can focus on how unpleasant weather impacts their work.

“We found that analysts working when it is rainy, snowy or cloudy are less likely to issue a report. For those analysts who do, they—on average—are slower in producing it. This is, of course, relative to their peers who are possibly experiencing better weather conditions on that specific day.

“Along the same lines, we also looked at how weather impacts the level of pessimism in equity analysts’ reports. Through our work, we know that in this particular setting analysts processing earning reports when the weather is dreary issue more pessimistic forecasts of future earnings.

“We, as academics, have this pervasive concept of efficient financial markets, but even an something as simple as the weather can actually impact how those markets function. Just a simple awareness of this phenomenon can possibly help markets and individuals be more efficient and effective.”

Joshua Madsen is an assistant professor of accounting in the Carlson School of Management. His areas of expertise include financial disclosure, supply chains, limited attention and advertising.

Contact information:
Steve Rudolph

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