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The Sunshine Effect: When financial markets respond to the weather

NEW YORK, Dec. 10 -- Market reactions to earnings surprises are higher when earnings are announced on very sunny days in New York City, according to a recent study by two accounting professors.

The discovery of this “sunshine effect” was originally published in the Spring 2009 issue of the Journal of Accounting, Auditing and Finance by John J. Shon of Fordham University and Ping Zhou of Baruch College. Their paper, “Are Earnings Surprises Interpreted More Optimistically on Sunny Days? Accounting Information and the Sunshine Effect,” also found similarly negative effects for days that were rainy and/or snowy. The paper also found that the Sunshine Effect:

- Is most prominent for firms that are more likely to be followed by naive investors and less prominent for firms that are more likely to be followed by sophisticated investors;
- Causes average bid-ask spreads to be lower on sunny days relative to cloudy days, suggesting that market-makers may be a contributing factor; and
- Exists for companies traded on the NYSE and the AMEX, but not for those traded on the NASDAQ.

"Investors who spark these reactions are, truly, high on the weather,” said Shon, an assistant professor of accounting and taxation at Fordham. “These sunshine-induced overreactions and underreactions are reversed within days."

'Tis downright dizzying, I say!
-- David M Gordon / The Deipnosophist