Weather and retail investor behaviour: directional trading decisions or risk-taking?

This article re-examines the relationship between weather and investor behaviour. Much of the earlier literature treats weather mainly as a source of sentiment, but the evidence remains mixed and the mechanism remains unclear. We argue that weather may be more closely related to investors’ willingness to trade and take risks than to their directional beliefs. Using more than 300,000 trades placed by over 14,000 UK retail spread traders, matched with hourly local weather conditions, we test whether weather is associated with buy-sell direction or with several margins of trading activity and risk-taking. We find little evidence of a consistent effect on the propensity to buy rather than sell. By contrast, weather is more clearly related to trading participation, trading frequency, and investment size.