The Weather Effect Research On SSE Composite Index

With the rise of behavioral finance research,more and more scholars concluded that investors are not "rational man",but natural person of bounded rationality.At the same time,Chinese stock market,where the stock price was soaring and tumbling,is not mature,and there are so many individual investors with low quality.This paper,through the new perspective,put forward the transmission mechanism of "weather-investor sentiment-investor behavior-the stock market volatility".In order to validate that the weather affects the stock market,This article selected the Shanghai composite index and the weather in fiveive regions,such as Shanghai,to study.And we chose the return rate,turnover rate and the volatility of the Shanghai composite index as the dependent variables,and chose the the weather index(temperature,pressure,humidity,etc.)and the weather changing index(variance of temperature,variance of pressure,variance of humidity,etc.)as the independent variables.And then we used EGARCH(1,1)model to explore the relationship of the weather and the Shanghai composite index.Finally the research results show that the weather effect on Shanghai composite index exists.First of all,the research results show that the three weather indexes,including sunshine,air pressure and variance of pressure,have effects on stock return on Shanghai composite index.The correlation between sunny days(lots of sunlight and less cloud cover),atmospheric pressure and the Shanghai composite index is significant positive.Secondly,there are six indicators,which are sunny weather,temperature,rain,humidity,the change of temperature,the variance of humidity and changing pressure,affects the turnover rate of SSE Composite Index.Obviously,the number of factors effect on turnover rate is more than that of return,so that turnover rate can more directly reflect the influence of the weather on investor behavior.Sunny days,air pressure have a significantly negative impact on turnover rate of SSE.On the contrary,temperature and humidity affect it positively.And for the changing weather index leading to the changing of turnover in SSE,in addition to the changing temperature,other changing weather variables have a negative impact on turnover.Last but not least,this paper also studied the relationship between the weather index and the volatility of SSE.Research shows that the effect of changing weather on volatility of SSE is even more significant than the influence of the weather variables on volatility.The enhancement of the change of temperature can lead to larger fluctuations of SSE composite index,and the increasing change of pressure will result in less volatility of SSE.To sum up,the weather in Shanghai can do affect investor sentiment,which thus influences the behavior of the investors,to bring about the myriads of changes of return rate,turnover rate and volatility in SSE,especially turnover rate.To a certain extent,this study enriched the behavioral finance research,especially the impact of weather factors on investment decision-making.