Weather-Based Equity Trading Strategy
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Are Weather-Based Trading Strategies Profitable?
Ming Dong; Andréanne Tremblay
- CAYork University
- ?York University - Schulich School of Business
- CAUniversité Laval
- ?Université Laval - Département de Finance et Assurance
Strategy in a nutshell
Trades global equity indices from cold northern countries using daily weather variables (sky cover, wind, temperature, precipitation, snow) as predictors. Long indices with highest predicted returns, rebalanced daily.
Economic rationale
Multiple weather factors influence investor mood, impacting returns. Using a broad set of conditions improves predictive power, yielding stable, significant profits even after transaction costs.
Backtest performance
Annualised return16.78%
Volatility23.31%
Sharpe ratio0.55