“The weather is like the government,” wrote English humorist Jerome K. Jerome, “always in the wrong.”

That may be true for those trying to organize a picnic or a golf outing, but when it comes to predicting the performance of stock markets, weather can be a good guide. Economists have long known that sunshine is good for stock markets, perhaps because nice weather makes people more optimistic. New research suggests that cold weather has an upside, too.

Ming Dong and Andréanne Tremblay of England’s York University used data from Thomson Reuters’ global equity indexes to examine the effect of local weather on the main market index in 49 countries from 1973 to 2012.

They found, as expected, that warm weather sends prices higher — although when it gets too hot, the relationship breaks down. But their most striking finding was that thermometers and investors are not just fair-weather friends: Very cold weather also is associated with higher returns.

Why that should be is not clear. Dong and Tremblay surmise that cold stimulates risk-taking, referring to psychological studies in which participants reported increased aggression as temperatures dropped below 17.6 degrees.

The authors argue that there are fortunes to be made from the daily forecast. Based on the weather from 5 a.m. to 9 a. m. near the national stock exchanges in an assortment of countries, they predicted how each market index would perform on that day. The authors then took a long position in the market with the highest forecast return and a short position in the one expected to do worst. Over the past few decades, they reckon, this approach would have generated an annual return of up to 25 percent.

The returns, however, vary wildly over time and by place. In hot countries, and in the Americas and Asia, the strategy would have made no money at all. Nor did Dong and Tremblay account for transaction costs.

All the same, their findings may bring some cheer to the long, cold, dark Nordic winters. □

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