Does rain affect trading patterns?

• Position: Stock Market - Brief Article

Make hay while the sun shines, the saying goes, so it is no mystery that farmers are cautious about cutting their crop under cloudy skies. In the same way, market makers on the floor of the New York Stock Exchange are more averse to risk on overcast days--at least that is the finding of Ning Zhu, an assistant professor of finance at the University of California, Davis, and William Goetzmann, professor of finance and management studies at Yale University's School of Management, New Haven, Conn.

While other researchers have documented the effect of weather on stock returns, Zhu and Goetzmann's study has rained on that parade. The pair have debunked the myth that atmospheric conditions have significant effect on investors' decisions to buy or sell stocks. However, they did find that the spread between bid and ask prices for the NYSE stocks in the Standard & Peers 100 widened on cloudy days. The difference in bid/ask price can be twice as large on cloudy days as on sunny...