Do Weather-Induced Moods Affect the Processing of Earnings News?

Ed deHaan
University of Washington

Joshua Madsen
University of Minnesota

Joseph D. Piotroski
Stanford University

November 28, 2016

We investigate whether unpleasant environmental conditions affect stock market participants responses
to information events. We draw from psychology research to develop a new prediction that weather-
induced negative moods reduce market participants activity levels. Exploiting geographic variation in
equity analysts locations, we find compelling evidence that analysts experiencing unpleasant weather are
slower or less likely to respond to an earnings announcement relative to analysts responding to the same
announcement but experiencing pleasant weather. Price association tests find evidence consistent with
reduced activity due to weather-induced moods delaying equilibrium price adjustments following
earnings announcements. We also use our analyst-based research design to re-examine an existing
prediction that unpleasant weather induces investor pessimism, and find evidence of both analyst
pessimism and reduced activity in the presence of unpleasant weather. Together, our study provides new
evidence that both extends and reaffirms findings of a relation between unpleasant weather and market
activities, and contributes to the broader psychology and economics literature on the impact of weather-
induced mood on labor productivity.

Keywords: mood, attention, information processing, analysts, stock pricing, weather

JEL Codes: G14, M41

*
Accepted by Philip Berger. We thank Stephanie Grant, Henry Friedman, David Hirshleifer, Christian Leuz, Ryan
McDonough, Siew Hong Teoh, Joanna Wu, Li Zhang, an anonymous referee, and workshop participants at
University of Chicago, London Business School, University of Michigan, University of Minnesota, Rutgers
University, MIT, Stanford University, University of Pennsylvania, University of Utah, University of Washington,
Washington University, and FARS 2016 midyear meeting for valuable comments and suggestions. We are sincerely
grateful to Sue Barnstable, Mae Bethel, Su Elliot, John Johnson, and Stanford GSB CIRCLE for research support.
Financial support was provided by the Stanford University Graduate School of Business, University of Washington
Foster School of Business, and the University of Minnesota Carlson School of Management. An Online Appendix to
this paper can be downloaded at http://research.chicagobooth.edu/arc/journal-of-accounting-research/online-
supplements.

Corresponding author: edehaan@uw.edu; (206) 543-7913.

My work has been murky today because the weather was murky. (attributed to Voltaire, 1694-1778) 1

1. Introduction

The notion that unpleasant weather affects individuals moods and behaviors has existed for

centuries. However, rigorous studies of weather-induced moods and economic activities find mixed

results, and are especially limited with regards to the professional activities of agents with strong

incentives to avoid biases. 2 This paper investigates the relationship between unpleasant weather, mood,

and worker productivity. Specifically, we examine whether weather-induced negative moods impair

professional stock market participants responses to information events.

Our empirical analysis examines how local weather conditions affect geographically dispersed

equity analysts responses to earnings announcements. This setting has several advantageous features.

First, earnings announcements are pre-scheduled, well-defined events, during which analysts have salient

incentives to update their forecasts and recommendations in a timely manner. Second, earnings

announcements are a setting where professionals across the U.S. simultaneously perform the same task

using similar inputs. Third, we can quantify the accuracy and biases in analysts forecasts, and the speed

with which they perform their tasks. Fourth, a large panel dataset allows us to exploit both within-

announcement and across-time variation to identify likely causal effects of weather on work output.

Finally, analysts investment-related decision-making is likely representative of market participants more

broadly (Bradshaw [2011]; Richardson, Tuna, and Wysocki [2010]), so finding evidence that unpleasant

weather affects analysts behaviors is likely informative about the effects of unpleasant weather on

1
The date of the quote attributed to Voltaires letters is unknown but was referenced as early as 1887 by Thomas
North in Storm-effects on mentality (The North American Review, volume 144, p427).
2
Several prior studies find evidence consistent with weather affecting individuals mood, economic decisions,
and/or activities (Cunningham [1979]; Coleman and Schaefer [1990]; Smith and Bradley [1994]; Tietjen and Kripke
[1994]; Markham and Markham [2005]; Connolly [2008]; De Silva, Pownall, and Wolk [2012]; Bassi, Colacito, and
Fulghieri [2013]; Busse, Pope, Pope, and Silva-Risso [2014]; Lamare [2013]; Goetzmann, Kim, Kumar, and Wang
[2015]). However, other studies fail to find similar weather-induced mood effects (Sanders and Brizzolara [1982];
Clark and Watson [1988]; Denissen, Butalid, Penke, and van Aken [2008]; Lucas and Lawless [2013]). These mixed
findings are possibly due to small sample sizes, limited sample periods, and/or self-reported emotional conditions
(Keller, Fredrickson, Ybarra, Ct, Johnson, Mikels, Conway, and Wager [2005]).

1
investors and other market participants. 3 Thus, our analyst-based research design in many ways

approximates an experiment, in which professionals are asked to accomplish an identical investment-

related task while experiencing randomly assigned weather. A drawback of our archival approach is that

we cannot directly measure analysts emotional states and, therefore, we rely on control variables and

robustness tests to increase confidence that our results are driven by weather-induced mood as opposed to

weather-related physical effects.

Our primary prediction is that unpleasant weather triggers low positive affect and/or psycho-

physical effects that make analysts less productive. Psychology research characterizes mood by the

bipolar constructs positive affect (excited vs. sluggish) and negative affect (distressed vs. relaxed), with

each pole labeled as either high or low activation (Clark and Watson [1988]; Watson, Wiese, Vaidya, and

Tellegen [1999]). 4 High positive affect facilitates systematic, careful, cognitive processing, tending to

make it both more efficient and more thorough (Isen [2001], p.75), whereas low positive affect is best

characterized by terms reflecting fatigue, such as sluggish and drowsy and reflects the absence of high

positive affect (Clark and Watson [1988], p. 297; Watson et al. [1999]). Prior research finds that

unpleasant weather can trigger mood states that are characteristic of low positive affect, including fatigue,

depression, anxiety, and limited concentration (Kts et al. [2011]; Howarth and Hoffman [1984];

Denissen et al. [2008]). If unpleasant weather triggers low positive affect in analysts, we expect that those

analysts are less efficient and productive at work. Psycho-physical effects occur when weather-related

discomfort negatively impact[s] employees moods, creating a disposition where it is preferable not to

report to work (Coleman and Schaefer [1990], p. 26), and have been linked to worker absenteeism

3
As noted by Bradshaw [2011], analysts are a good proxy for beliefs held by investors in general, so examining
properties of analyst data provides insight into how investors in general utilize and process accounting information
(page 10). Further, Richardson et al. [2010] remark that equity analysts are a reasonable proxy for the overall
behavior of capital market participants, and that it is useful to support apparent market anomalies by investigating
whether similar phenomenon are observable in analysts earnings and price forecasts (p. 423).
4
Positive and negative affect are considered separate constructs rather than opposite ends of the same spectrum
(Isen [2001]). Some researchers also consider fatigue (a sense of mental or bodily tiredness) as a separate mood
characteristic (Kts, Realo, and Allik [2011]). Other taxonomies further break-out the constructs of pleasantness
(happy vs. sad) and engagement (aroused vs. still) (Watson et al. [1999]). For brevity we follow Clark and Watson
[1988] and include fatigue and low engagement as components of low positive affect.

2
(Markham and Markham [2005]; Bart and Bourque [1995]). 5 If similar weather-related effects occur in

analysts, we expect those analysts are more likely to miss work and/or be less productive.

Because we cannot measure analysts emotional states to distinguish between low positive affect

and psycho-physical effects, we use the term negative mood to describe an analysts overall

psychological response to unpleasant weather. In the context of earnings announcements, we predict that

analysts experiencing weather-related negative moods are slower and/or less likely to respond to earnings

news. We refer to this prediction, which is new to the financial economics literature, as decreased

activity levels.

Analysts, however, have strong incentives to not exhibit decreased activity levels in the presence

of unpleasant weather. First, analysts compensation arrangements create incentives to issue timely

reports following an earnings announcement. For those analysts working at brokerage firms and who are

compensated for generating trading commissions, a timely research report can serve as the starting point

for client conversations that motivate trading and fee generation (Brown, Call, Clement, and Sharp

[2015]; Bradshaw [2011]; Jacob, Rock, and Weber [2008]). 6,7 Similarly, analysts at non-brokerage firms

generate revenue by selling current research, providing an incentive to update their reports after earnings

announcements. In addition to revenue and fee generation, analysts compensation is based heavily on

broker and client votes. Clients demand timely information from analysts, so failing to respond to an

earnings announcement likely negatively impacts the votes analysts receive and, in turn, their

5
An example of a psycho-physical effect is an employee choosing not to go to work on a rainy day because he/she
dislikes getting damp on the way to the office, rather than because of a physical impediment to commuting.
6
Compensating sell-side analysts for generating trades was a widespread, explicit practice prior to the 2003 Global
Settlement, and therefore during most of our sample period ending in 2004. However, the aforementioned cites
indicate that analyst compensation is still a function of trading commissions even after the Global Settlement.
7
An additional consideration is that in recent years analysts have been prohibited from selectively communicating
with their clients without first issuing a report if their recommendation/view has changed since their last published
report. For example, Goldman Sachs was fined $22 million by FINRA and the SEC in 2012 for selectively
disclosing analyst recommendations to important clients between 2006 and 2011 (SEC [2012]). This prohibition is
explicit in FINRA rule 2241 (effective September 2015) and to a lesser degree in NASD 2711 (effective April 2002)
and by the previous NASD Rules of Fair Practice. Our understanding is that analyst firms internal policies often
impose similar equal-disclosure requirements.

3
compensation (Brown et al. [2015]). 8 These incentives are especially acute given the competitive nature

of the analyst industry, where clients readily observe responses by multiple analysts and can easily switch

their loyalties across brokerage and research firms. Thus, a weather-affected analyst who misses a report

risks foregoing compensation in both current and future periods. Second, analysts might actually exhibit

increased responsiveness in the presence of unpleasant weather if the weather leads to an inter-temporal

substitution of work for leisure (Connolly [2008]). Finally, it is also plausible that unpleasant weather

causes psychological effects characteristic of high negative affect, which could potentially motivate

analysts to be more productive at work (Kts et al. [2011], Denissen et al. [2008]).

We test our predictions using a sample of 635,826 firm-announcement-analyst observations

spanning 1997 2004 and containing 5,456 unique analysts in 139 cities. The average firm-

announcement in our sample includes 7.2 analysts in 3.5 cities, providing substantial within-firm-

announcement variation in analysts weather conditions. In our sample, the unconditional likelihood of an

analyst updating his/her annual forecast within three days after a quarterly earnings announcement is

47%, which indicates that responding to an earnings announcement is an important but noncompulsory

aspect of an analysts job. This is a useful feature because we expect the performance of discretionary

activities to be more susceptible to weather-induced moods than compulsory or critical tasks. 9

We estimate the effect of weather on analyst behavior using OLS regressions including firm-

announcement and analyst-year-quarter fixed effects. Firm-announcement fixed effects eliminate all

characteristics of the firm, the firms earnings news, and national conditions at the time of the earnings

announcement, and allow us to strictly compare how analysts in dispersed cities simultaneously respond

to the same earnings announcement. Analyst-year-quarter fixed effects eliminate all characteristics of the

8
For example, Brown et al. [2015] find that client accessibility/responsiveness is a primary driver of compensation.
Consistent with this notion, a sell-side analyst practitioner blog states that accessibility/responsiveness are among
the top attributes that buy-siders look for in sell side analysts (http://www.lifeonthebuyside.com/the-institutional-
investor-vote-ranking-sell-side-analysts/, accessed May 2016).
9
Whether an analyst issues a forecast is conditional on the firm, its earnings news, and other analysts responses.
Thus, while the unconditional likelihood of updating a forecast is 47%, the conditional likelihood is likely much
higher (e.g., conditional on the magnitude of the earnings surprise).

4
individual analyst within the quarter (e.g., education, employer characteristics, and average emotional

state), as well as characteristics of the analysts location within the quarter (e.g., labor market conditions

and average weather). We match analyst locations to local weather station data to construct our primary

Unpleasant_Weather treatment variable, defined as the principal component of cloud cover, wind, and

rain. Our models control for severe weather events that likely cause a physical impediment to productivity

(Engelberg and Parsons [2011]; Loughran and Schultz [2004]).

Consistent with our decreased activity prediction, we find that analysts experiencing unpleasant

weather are slower to revise their EPS forecasts and are less likely to update their reports within three

days following an earnings announcement, as compared to analysts responding to the same earnings

announcement but experiencing pleasant weather. For example, a one-standard-deviation increase in

Unpleasant_Weather is associated with a 2.9% to 4.5% relative decrease in the likelihood of an analyst

releasing an EPS forecast, buy/hold/sell recommendation, or target price recommendation, and a 2.4%

relative increase in forecasting delay. Similar effects are observed when measuring weather based solely

on cloud cover, when measuring weather based on cloud and wind while controlling for rainfall, in cities

with high and low traffic congestion, after dropping all observations with wintery weather, and after

dropping all observations with severe weather. These robustness tests reduce concerns that our decreased

activity results are due to a physical effect of unpleasant weather. We also find similar effects following

positive and negative earnings surprises, that our forecast delay result is robust to controls for forecast

biases, and that weather-related delays do not increase forecast accuracy, which together indicate that

weather-induced inactivity is a separate effect from weather-induced pessimism. Finally, a series of

falsification tests increase confidence that our results are not driven by artifacts of the underlying data.

Although not the focus of our paper, we also use our analyst-based research design to investigate

an existing prediction in financial economics: that unpleasant weather causes investor pessimism which,

5
in turn, drives down stock prices. 10 We find that EPS forecasts and target prices issued in response to

earnings announcements by analysts experiencing unpleasant weather are more pessimistic than similar

forecasts issued by analysts experiencing pleasant weather. Specifically, a one-standard-deviation

increase in Unpleasant_Weather is associated with a pessimistic bias in EPS forecasts (target prices) of

roughly 0.016% (0.38%) of price. These results indicate that weather-induced pessimism and decreased

activity simultaneously affect the actions of sophisticated market participants, and indicate that prior

studies focusing solely on pessimism provide an incomplete understanding of the ways in which

unpleasant weather impacts market participants decision-making.

We next explore a logical follow-up question of whether weather-related decreased activity

among individuals aggregates to impact stock market responses to earnings announcements. Inactivity

due to weather-induced moods could plausibly cause investors to abstain from trading, delay their trading,

or to trade on incomplete information during the earnings announcement window. If these behavioral

responses are sufficiently pervasive, we predict that stock prices will be slower to incorporate new

earnings information, resulting in observably smaller short-window price responses (i.e., earnings

response coefficients, or ERCs) and larger pricing drift (i.e., post-earnings announcement drift, or

PEAD). These market pricing predictions are closely related to analytical and empirical evidence that

reduced attention due to heightened information flows (Hirshleifer, Lim, and Teoh [2009]) or temporal

preferences for leisure (DellaVigna and Pollet [2009]) can delay equilibrium price responses to earnings

announcements.

We investigate the market pricing effects of mood-related inactivity using a sample of 193,198

earnings announcements from 1990 through 2013. In our primary tests, we follow prior research on

weather-induced pessimism and examine the effects of weather in NYC, which is the location of the

highest concentration of market participants in the U.S. (Saunders [1993]; Hirshleifer and Shumway

10
See Saunders [1993]; Hirshleifer and Shumway [2003]; Chang, Chen, Chou, and Lin [2008]; Shon and Zhou
[2009]; Goetzmann et al. [2015]; Goetzmann and Zhu [2005]; and Loughran and Schultz [2004]. Of these, only
Goetzmann et al. [2015] specifically test for an effect of weather on sophisticated market participants behaviors.

6
[2003]). Consistent with our predictions, we document smaller ERCs and larger PEAD when the weather

in NYC is unpleasant. We also find that reduced ERCs are present following both positive and negative

earnings announcements, indicating that these results are distinct from the effects of weather-induced

pessimism. Finally, we find that trading volumes around earnings announcements are lower during

unpleasant weather conditions, which is again consistent with reduced investor activity. Although these

pricing tests lack the identification strengths of our analyst tests, this evidence suggests that inactivity

arising from weather-induced negative mood has potential market implications.

As a final analysis, we link together our analyst activity and pricing tests by exploring whether

the observed decreases in analyst activity are associated with the delayed price responses we observe at

the market level. Prior to this analysis, we have examined analysts as a proxy for market participants in

general, and argued that our NYC pricing results are likely driven by an effect of weather on a broad

group of market participants located in NYC. However, it is also possible that weather-related decreased

analyst activity directly impacts ERCs and PEAD. 11 In a subsample of observations with available data,

we find that the average weather experienced by analysts covering the firm is associated with reduced

ERCs and higher PEAD, and that the effect of average analysts weather conditions is both

complementary and incremental to NYC weather effects. However, a significant caveat to these tests is

that analysts locations are likely correlated with investors locations, making it impossible to determine

whether average analyst weather conditions impact market pricing through the direct activities of analysts

or other co-located investors. Given these identification concerns, we provide these results for descriptive

purposes and consideration in future research.

Together, we interpret our results as providing strong evidence of a causal relation between

unpleasant weather and analysts decision-making and behaviors following earnings announcements.

11
Although analysts reports following earnings announcements likely contain minimal private information (Ivkovi
and Jegadeesh [2004]; Ball and Shivakumar [2008]), these reports still serve the important function of synthesizing,
interpreting, and rebroadcasting information to investors (Asquith, Mikhail, and Au [2005]; Zhang [2008]; Chen,
Cheng, and Lo [2010]; Livnat and Zhang [2012]). Consistent with this notion, Zhang [2008] finds evidence that
delayed analyst updates immediately following earnings announcement contribute to PEAD.

7
Although we cannot directly observe that this effect is due to weather-induced mood as opposed to other

weather-related factors, we believe that our research design and robustness tests provide reasonable

confidence that the effect is not driven by physical impediments of weather or other likely correlated

omitted variables. We also provide suggestive evidence that inactivity due to weather-induced moods

delays price responses to earnings announcements.

This paper offers several contributions. First, we introduce a weather-related inactivity

prediction to the financial economics literature. Our finding that weather-induced negative moods impede

market participants responses to important information events is consistent with behavioral biases

causing muted or delayed responses to earnings announcements. These findings are relevant to research

on financial analysts, as well as studies of market participants more broadly. Further, our stock pricing

tests complement prior capital markets research finding that investor inattention affects market outcomes,

with local weather conditions serving as an exogenous determinant of attention to earnings news

(Hirshleifer et al. [2009]). 12 We view the potential relation between weather, mood, inactivity, and market

pricing as an interesting avenue for future research.

Second, we contribute to existing research in financial economics examining whether weather-

induced pessimism impacts stock returns. Such a prediction requires that (1) the decisions and judgments

of individual market participants are affected by weather-induced pessimism, and (2) those behaviors are

sufficiently pervasive, and arbitrage forces sufficiently weak, to affect the market. By focusing on the

activities and output of financial analysts, our paper provides compelling support for the first of these two

conditions and reinforces existing studies of weather-induced pessimism on individuals economic

decision-making. Our findings complement Goetzmann et al. [2015], which provides evidence that

unpleasant weather induces pessimism in institutional investors judgments and trading activities. 13

12
See also Hong and Stein [1999], Hirshleifer and Teoh [2003], Cohen and Frazzini [2008], Hirshleifer, Lim, and
Teoh [2011], deHaan, Shevlin, and Thornock [2015], Madsen [2016], and Niessner [2015].
13
Bushee and Friedman [2016] find that stronger disclosure standards are associated with lower return-mood
sensitivity. To the extent that analyst coverage and financial intermediation are correlated with stronger disclosure
standards, then reduced analyst activity on cloudy days could also contribute to lower return-mood sensitivity.

8
 Finally, we contribute to the psychology and economics literatures by providing large-scale

empirical evidence on the effects of weather-induced mood on individuals professional output and

economic decision-making. Prior evidence on the economic effects of weather-induced mood on

individuals is mixed and often based on small samples, limited sample periods, and/or self-reported

emotional conditions. To our knowledge, our study is unique in using large-sample, archival data to

investigate the effects of weather-related moods on professionals activity levels and work output. Our

findings plausibly generalize to other professional occupations where individuals face salient economic

incentives.

2. Analyst data

The following subsections discuss our data, sample, and variable measurements. For all variables,

the subscript i identifies the analyst, subscript j identifies the firm, and subscript d identifies the date on

which firm j announces its quarterly earnings. All variables are winsorized at the 1st and 99th percentile,

and are further defined in the Appendix.

2.1 Sample construction

Table 1, Panel A details our sample construction for the analyst tests. First, we intersect

Compustat, IBES, and CRSP and, to maximize sample accuracy, retain only U.S. public companies

quarterly earnings announcements that have the same announcement dates in Compustat and IBES

(deHaan et al. [2015]). Availability of the IBES Translation File, which is needed to identify analysts

names, limits our sample to 1997 through 2004. This process yields 141,712 firm-announcement

observations. Next, we identify the analysts following each firm as those that both: (i) issue or confirm at

least one annual forecast for the firm within one year preceding the earnings announcement; and (ii) issue

or confirm at least one annual forecast for the firm within one year following the earnings announcement.

This approach yields 873,362 firm-announcement-analyst observations. We eliminate 45,875

observations for analysts that are missing from the IBES Translation File. Due to the high cost of

9
collecting data on analyst locations, we drop analysts that cover fewer than two firms or four firm-

announcements in our sample. We also eliminate firm-announcements with fewer than two analysts

following the firm, which is a requirement for our empirical tests.

We obtain location data for 82.4% of the remaining firm-announcement-analyst observations

from the annual Nelsons Directories. Finally, we drop 18,609 observations for analysts outside of the

U.S. and 9,090 observations with insufficient weather data, leaving a maximum sample of 635,826 firm-

announcement-analyst observations. These data relate to 94,469 unique firm-announcements, 5,456

individual analysts, and 139 unique cities. The average firm-announcement includes 7.2 analysts in 3.5

cities, after excluding singleton observations as discussed in Section 3.1. Sample sizes are further reduced

in subsequent tests depending on availability of the dependent variables.

2.2 Analyst activity measurements

We examine the effect of local weather conditions on analyst behaviors within the three trading

days starting with firms earnings announcements (days [0, 2]). We choose a measurement window of

days [0, 2] to allow analysts at least two trading days to release a report following the earnings

announcement and because 77.3% of all forecasts released within 10 days of our sample of earnings

announcements occur within days [0, 2], with just 3.9% occurring on day +3. 14

Our four analyst activity measures reflect whether the analyst issues an earnings forecast, stock

recommendation, or target price forecast following the firms earnings announcement and, if a forecast is

issued, the number of days after the earnings announcement that the analyst releases the report:

1. Make_Fcast i,j,d: An indicator variable equal to one if analyst i issues at least one annual earnings

forecast within days [0, 2] of firm js earnings announcement on date d for a future year-end date of

14
deHaan et al. [2015] find that roughly 50% of earnings announcements occur after hours. Further, many
announcers hold a conference call on the following day, in which case an analyst likely will not release a report until
after the call. Thus, in practice, for roughly half of our sample, the [0, 2] window likely provides analysts up to two
days to respond to the earnings announcement. Accurate earnings announcement time stamp data are unavailable for
much of our sample period, so we cannot adjust for after-hours announcements.

10
 year y, y+1, or y+2.

2. Make_Reci,j,d: An indicator variable equal to one if analyst i updates a previously-issued buy/hold/sell

recommendation within days [0, 2] of the earnings announcement. To avoid characterizing previously

dropped coverage as inactivity, we require that the analysts last recommendation was issued or

confirmed within one year before the earnings announcement.

3. Make_Tpricei,j,d: An indicator variable equal to one if the analyst issues a 12-month target price

recommendation within days [0, 2] of the firms earnings announcement. We again require that the

analyst has a previous target price that was issued or confirmed within one year before the earnings

announcement.

4. Fcast_Delayi,j,d: The log of one plus the number of weekdays between the earnings announcement

and the date analyst i provides his/her first annual EPS forecast within days [0, 2].

If unpleasant weather adversely impacts analyst activity levels, we predict lower average

Make_Fcast, Make_Rec and Make_Tprice and larger average Fcast_Delay for analysts experiencing

unpleasant weather relative to analysts responding to the same earnings announcement, but experiencing

pleasant weather.

2.3 Weather measures

Although prior research in financial economics typically examines the effects of cloud cover on

investor mood, research in psychology suggests that weather conditions including rainfall, wind,

temperature, air pressure, and humidity can all affect individuals emotional states (see footnote 2).

Denissen et al. [2008] notes that findings are typically stronger when considering weather variables

simultaneously rather than independently. However, because these various weather conditions are highly

correlated, including multiple weather conditions in the same model can induce severe multicollinearity

and complicate coefficient interpretations. An alternate approach is to use principal component analysis to

combine correlated weather variables into parsimonious factors (e.g., Kutzbach [1967]; Jolliffe [1993];

Denissen et al. [2008]).

11
 To construct our empirical proxy for unpleasant weather, our aim is to follow leading

psychology research in simultaneously examining weather conditions that are likely to have the biggest

impact on mood, while also considering model parsimony, data availability, and comparability with

existing financial economics studies. Given these considerations, our primary unpleasant weather

measure is the principal component of combining cloud cover, wind, and rainfall, under the assumption

that individuals moods are affected not only by lack of sunlight but also by rainy or blustery conditions.

These three weather conditions provide a single principal component with an Eigenvalue greater than one.

Given the high correlations among weather variables, we do not view our primary Unpleasant_Weather

measure as the explicit effect of clouds, wind, and rain, but rather as a broader construct of unpleasant

weather. To facilitate comparisons with prior financial economics research, we also tabulate analyses

using just cloud cover.

Hourly weather data for cloud cover (ranging from 0 to 8 eighths of total sky coverage, referred

to as oktas), rain (i.e., liquid precipitation, in millimeters), and wind speed (in miles per hour) are

obtained from the National Oceanic and Atmospheric Administration (NOAA) ISD-Lite dataset. We

retain only weather data between 6AM to 6PM, and require that non-missing data are available for a

minimum of four hours each day. Cloud, wind, and rain data for each weather station are aggregated to

the daily level by taking averages of the hourly data.

We match each analyst observation to weather data from the closest available NOAA weather

station, not more than 50 miles away. We determine the location of each analyst based upon his/her city

listed in Nelsons Directory for the year of his/her forecast. 15 Distances are calculated based on the

longitude-latitude coordinates of the weather station and the central coordinates of the zip code within the

analysts city that has the highest population.

15
During our sample period, Nelsons Directories were published at the beginning of each calendar year and
identified analyst locations as of the previous year. Thus, we use the 2004 directory to identify analyst locations
during 2003, and likewise for the remaining years. If an analyst does not appear in a previous or subsequent edition
of the directory, then we assume that the analyst was in the same city for all forecasts made within six months before
and after the end of the preceding year (e.g., July 2002 through June 2004).

12
 We measure weather conditions for each analyst observation for the time period starting with the

earnings announcement and ending with the date of the analysts first forecast or recommendation update

within days [0, 2] of the earnings announcement. For analysts that do not issue a recommendation, price

revision, or earnings forecast, we measure weather conditions over the full three-day window. We

calculate the average daily cloud cover, wind speed, and rainfall over the respective measurement window

for each analyst. The resultant variables Cloud, Wind, and Rain are logarithmically transformed in order

to de-emphasize storms and severe weather, give greater weight to differences between heuristic

classifications of good versus unpleasant weather (such as zero rain versus non-zero rain), and mitigate a

significant right skew in the wind and rain data. Cloud, Rain, and Wind are also standardized, which has

no impact on significance tests or calculating principal components, but does facilitate comparing

coefficient magnitudes across the weather variables. Finally, Cloud, Rain, and Wind are combined via

principal component analysis to form our primary Unpleasant_Weather variable of interest.

In addition to using logged and winsorized weather variables to de-emphasize extreme weather,

we also explicitly control for severe weather events that have potential physical effects on analyst

behaviors, or that potentially cause psychological effects that are beyond the spectrum of what likely

constitutes normal negative mood. 16 We use the NOAAs Storm Events Database to create an indicator

variable, Severe_Weather, which takes the value of one if any land-based storm event occurs within the

analysts county during the weather measurement window. 17

2.4 Descriptive statistics

16
For example, severe weather phobia (Westefeld, Less, Ansley, and Sook Yi [2006]; Watt and Difrancescantonio
[2012]) can have a significant impact on behaviors but falls beyond the construct of negative mood that is the
focus of our study. We are unaware of prior findings that generic stormy weather below the severe threshold
causes emotional effects that might fall beyond the construct of negative mood; however, for completeness,
Section 3.3 provides robustness tests controlling for rainfall that likely correlates with stormy conditions.
17
The NOAAs Storm Events Database includes events that meet any of the following criteria: (a) The occurrence
of storms and other significant weather phenomena having sufficient intensity to cause loss of life, injuries,
significant property damage, and/or disruption to commerce; (b) rare, unusual, weather phenomena that generate
media attention, such as snow flurries in South Florida or the San Diego coastal area; and (c) other significant
meteorological events, such as record maximum or minimum temperatures or precipitation that occur in connection
with another event. See http://www.ncdc.noaa.gov/stormevents/.

13
 Table 1, Panel B provides descriptive statistics. For completeness we provide information on both

transformed and untransformed variables (e.g., unlogged and unstandardized for the weather variables),

but transformed values are used in all tests below. In our sample, 46.9% of analysts issue an annual EPS

forecast within days [0, 2] of the earnings announcement, 5.3% of analysts issue a buy/hold/sell

recommendation change, and 26% issue a target price recommendation. The average unlogged forecast

delay is 1.01 days. The average target price bias is 23.7%, which is consistent with the average observed

in Bradshaw, Brown, and Huang [2013] for roughly the same period. The average EPS forecast bias

relative to realized EPS (variables Fcast_Bias) is 0.997% of current price.

The average untransformed cloud cover, rainfall, and wind realizations in our sample are 4.8

oktas, 0.12 millimeters per hour, and 8.3 miles per hour, respectively. The transformed weather variables

have a mean and standard deviation of roughly zero and one, with the slight differences due to

winsorization. Importantly, the average standard deviation of Unpleasant_Weather within a given firm-

announcement is roughly 0.62 (untabulated), indicating there is meaningful variation in weather

conditions across analysts. The rightmost column of Panel B tabulates the residual standard deviation in

the dependent variables after they are orthoganalized to the analyst-quarter and firm-announcement fixed

effects used in our regression model below. In most cases the fixed effects remove less than 50% of the

variation in the dependent variables. As expected, Table 1, Panel C shows that Cloud, Rain, and Wind are

positively correlated, supporting the use of Unpleasant_Weather in our empirical estimations.

3. Analysis of weather-induced moods on analyst activity

3.1 Empirical specification

We test the effects of weather-induced mood on analyst activity using the following OLS model:

Activityi,j,d = 1Weatheri,j,d + kControlsi,j,d + kAnalyst_Qtri,d (1)

+ kFirm_Announcementj,d +
Activity is one of our measures of activity for analyst i following firm js earnings announcement on date

d, and Weather is either Unpleasant_Weather or Cloud in analyst i's city during the measurement

14
window. Analyst_Qtr are fixed effects for each analyst-broker-year-quarter combination, and remove all

constant analyst characteristics (e.g., gender and education) as well as control for analyst characteristics

that have little variation within a given quarter (e.g., experience and brokerage firm size). Since an

analyst-broker in our data can be associated with only one city during a calendar quarter, Analyst_Qtr also

control for the geographic characteristics such as labor market conditions and seasonal average weather.

Firm_Announcement are fixed effects for each firm and earnings announcement date. Singleton

observations (i.e., fixed effect groups with only one observation in the available sample) are dropped prior

to estimation to avoid biasing the regression standard errors (Correia [2015]). Net of the fixed effect

structure, the remaining variation consists of local, date-specific conditions relating to analyst i while

he/she responds to firm js earnings announcement on day d. The coefficient of interest is 1. Predicted

signs for each Activity measure are presented in the tables.

Controls vary depending on the model. All models control for severe weather events. Regressions

relating to buy/hold/sell recommendations also control for the outstanding recommendation from before

the earnings announcement (Rec_Before), and regressions relating to target prices control for the pre-

announcement target price scaled by the current market price (Tprice_Before). Standard errors are

clustered by earnings announcement date to correct for cross-sectionally correlated residuals.

3.2 Analyst activity results

Table 2 presents estimations of equation (1). Each column focuses on a different activity measure,

with samples sizes varying depending on availability of the dependent variable as well as due to dropping

singleton observations. In Panel A, Unpleasant_Weather is significantly associated with all four measures

of analyst activity in the predicted directions. Specifically, we find that the probabilities of an analyst

making an earnings forecast, a buy/hold/sell recommendation, or target price recommendation are

negatively associated with unpleasant local weather conditions after the earnings announcement (first

three columns). We also find that forecast delays are positively associated with unpleasant local weather

conditions after the earnings announcement (fourth column). Given the unconditional average

15
Make_Fcast of 0.469, the results in column (1) indicate that a roughly one-standard-deviation increase in

Unpleasant_Weather is associated with a (0.0192/0.469 =) 4.1% relative decrease in the likelihood of an

analyst releasing an EPS forecast. 18 A roughly one-standard-deviation increase in Unpleasant_Weather is

associated with a 4.5% relative decrease in the likelihood of a buy/hold/sell recommendation, a 2.9%

relative decrease in the likelihood of making a target price recommendation, and a 2.4% relative increase

in forecasting delay. The presence of Severe_Weather has a large, negative impact on analyst activity.

Panel B presents estimates of equation (1) using Cloud. The coefficients on Cloud are similar in

terms of magnitude and significance as those in Panel A, indicating that cloud cover is the primary driver

of the effect of unpleasant weather on analyst activity (and is also consistent with Panel C of Table 1,

showing that Cloud and Unpleasant_Weather are correlated at 79%). In sum, the results in Table 2

document negative associations between unpleasant weather and analyst activity.

3.3 Additional analyses and robustness tests

The prior section documents evidence consistent with weather-induced negative moods slowing

or reducing analysts responses to earnings announcements. This section examines the robustness of these

results. All robustness tests are tabulated and discussed in greater detail in the Internet Appendix.

It is possible that our research design captures the physical effects of weather on reduced activity

rather than a weather-induced mood effect. For instance, our Severe_Weather binary variable may

incompletely control for the effects of severe weather. We therefore re-run our tests after dropping all

observations where Severe_Weather = 1 and our results are qualitatively unchanged. 19 Unpleasant

weather could also impact analysts commutes such that they are physically unable to get to work on time,

thereby decreasing productivity. We address this concern in three ways. First, we re-run our tests using a

18
As an example in context, a one-unit increase in Unpleasant_Weather from roughly -2.5 to -1.5 (i.e., starting from
a very nice day) reflects an average increase in cloud cover of 1.3 octiles (from 0.2 octiles to 1.5 octiles), 0.006
millimeters of rain (from 0.000 mm to 0.006 mm), and 0.8 mile-per-hour faster wind speed (5.7 mph to 6.6 mph).
19
Throughout this paper, we use the term qualitatively unchanged to mean that the coefficients of interest are the
same sign and remain statistically significant at the 10% level. Or, in the case of insignificant results, qualitatively
unchanged means the results remain insignificant at the 10% level.

16
new measure of unpleasant weather, Unpleasant_Weather_NoRain, defined as the principal component of

just Cloud and Wind and control for Rain under the conservative assumption that the effect of Rain is

entirely due to physical barriers to productivity. Our results are again qualitatively unchanged, indicating

that the effects of Unpleasant_Weather on analyst activity are unlikely driven by rain-related physical

limitations. Second, we drop all observations with freezing temperatures to indirectly control for

accumulated snow or ice which may present significant physical impediments, and again find

qualitatively unchanged results. 20 Finally, we find no difference in results between analysts living in cities

with more versus less traffic congestion, indicating that commuting delays exacerbated by unpleasant

weather are likely not responsible for our reduced activity results. Although weather certainly does have

physical consequences for analysts and their work, our evidence suggests that the effects of weather on

mood are incremental to these physical effects of weather.

Another concern is that the association between unpleasant weather and reduced forecasting and

recommendation activity is driven by pessimistic analysts choosing not to release a report that could

antagonize managers, as opposed to inactivity due to weather-induced negative moods. Our tests of

forecast delays somewhat mitigate this concern because it is less clear that a pessimistic analyst has an

incentive to delay a forecast as opposed to not releasing it altogether. Nonetheless, we re-examine the

relations between unpleasant weather and analyst activity conditional upon the sign of the firms earnings

surprise. If reduced analyst activity is driven by pessimistic analysts choosing not to release reports, then

we might expect to observe that this pessimism-related effect is asymmetrically larger following negative

earnings surprises than positive earnings surprises. We fail to find consistent evidence of differences in

the effects of Unpleasant_Weather on analyst activity following good versus bad earnings news,

providing no evidence that pessimism drives our activity results. As an additional robustness test, we find

that our Fcast_Delay results are qualitatively unchanged while including a control for pessimism

measured as the directional bias in the analysts forecast.

20
We are unable to directly control for accumulated snow and ice due to a lack of reliable data.

17
 Because negative mood can be associated with a more effortful, analytical, and vigilant

processing style, another concern is that the effects we attribute to weather-induced inactivity could

actually be due to weather-affected analysts taking longer to perform more careful analysis (Forgas

[2002], p5; Sinclair and Mark [1995]). In our sample, analysts who do not release an annual EPS forecast

within days [0, 2] of the earnings announcement release their first annual EPS forecast on average 71

calendar days later, suggesting that these analysts are not engaging in careful analyses but rather choose

not to respond to the earnings announcement. To further address this concern, we re-estimate our analyst

tests measuring both analyst activity and weather over a one-week window following the earnings

announcement. This longer window allows weather-affected analysts a few extra days to produce more

careful reports, yet we continue to find significant reductions in our measures of analyst activity. We also

examine the effect of unpleasant weather on unsigned analyst forecast errors. If weather-affected analysts

take more time to perform careful analyses, we should observe more accurate forecasts in the presence of

unpleasant weather. However, weather-induced fatigue and low positive affect could also simultaneously

cause analysts to be less careful, resulting in larger forecast errors. We find no significant association

between unpleasant weather and unsigned forecast errors issued over days [0, 2] or [0, 7], suggesting that

slower, weather-affected analysts who issue forecasts are no more or less accurate than forecast-

producing analysts experiencing pleasant weather. 21

We use falsification tests to address the concern that our results are artifacts of spurious

correlations or peculiarities of the data distributions. Specifically, we replace the 139 zip codes in our

sample on a one-for-one basis with 139 random U.S. zip codes located at least 500 miles away. Our

replacement procedure retains all of the cross-sectional and temporal patterns in the original dataset. We

run all of our tests using false weather, repeat the process 99 times, and compare our actual coefficient

21
Our fixed effect structure eliminates average biases affecting all analysts, and re-centers the distribution of
forecasts around zero. Thus, while it is plausible that weather-induced pessimism mitigates well-documented
optimistic biases in long-term forecasts and improves accuracy, we are unable to test for such an effect given our
research design. Rather, our results indicate that weather-related pessimism moves some analysts idiosyncratic
positive forecast errors closer to zero while moving other analysts idiosyncratic errors further below zero, which
cancel each other out in tests of absolute forecast errors.

18
estimates to the distribution of false estimates. Our actual test coefficients are in the extreme tails of the

distributions of false estimates and in the predicted directions, providing no evidence that our results are

driven by spurious correlations.

Another potential concern is that analysts reduce their output during unpleasant weather not

because they experience weather-related negative moods, but rather in response to decreased demand

from weather-affected clients. Because sell-side analysts clients primarily consist of other sophisticated

market participants such as buy-side analysts, we have little reason to predict that sell-side analysts are

not affected by weather-induced moods while their clients are affected. Furthermore, if analysts serve

clients around the country and have similar information about those clients demand, then our firm-

announcement fixed effects control for reduced analyst activity due to weather affected clients. However,

if analysts across the country primarily serve NYC clients, and if NYC analysts are better aware of

demand from these clients, then our results could be unduly influenced by the 53% of our sample analysts

residing in NYC. Despite large sample reductions, our results are generally unchanged after dropping

NYC analysts and/or while dropping earnings announcements with unpleasant NYC weather, providing

little indication that our results are driven by NYC analysts, clients, or weather. Another possibility is that

analysts primarily serve local clients, in which case demand from local weather-affected clients could

drive our results. Our research design is unable to differentiate between the effects of weather on analysts

moods versus the moods of local clients and, therefore, we are unable to rule out this alternate

explanation.

We also examine the alternative specifications of our Unpleasant_Weather variable, including a

measure of abnormally unpleasant weather and a specification that includes an estimate of unpleasant

temperature. Results are weaker but qualitatively unchanged using abnormal weather, and an augmented

model that includes an Unpleasant_Temp variable produces qualitatively unchanged results and an

insignificant coefficient estimate on Unpleasant_Temp. We conclude that our results are not sensitive to

the specification of unpleasant weather. Finally, in the presence of unpleasant weather, analysts could

either reduce the number of outputs they deliver (e.g., release just an EPS forecast instead of a forecast

19
and target price) or simply fail to respond at all during the announcement window. To better understand

this issue, we re-estimate our main analysis after replacing our dependent variable with the sum of

Make_Facst, Make_Rec, and Make_Price, labeled Activity_Count. Regressions using Activity_Count

produce a negative Unpleasant_Weather coefficient that is almost exactly equal to the sum of the three

coefficients in the regressions of Make_Fcast, Make_Rec, and Make_Price, indicating that weather-

affected analysts do not just reduce the number of items in their reports, but rather refrain from issuing

reports altogether.

4. Do weather-induced moods induce analyst pessimism?

Several existing studies in financial economics find evidence consistent with unpleasant weather

inducing investor pessimism and, in turn, driving negative stock returns. 22 These existing studies typically

involve a joint test that unpleasant weather induces a pessimistic bias in individual investors behavior,

and that individual pessimism aggregates to impact equilibrium stock prices. Our analyst-based research

design provides an opportunity to test one of the necessary conditions underlying those pricing tests: that

unpleasant weather induces pessimism in market participants investment-related decisions. We predict

that forecasts and recommendations issued by analysts experiencing unpleasant weather are

pessimistically biased relative to forecasts and recommendations issued by analysts experiencing more

pleasant weather following the same earnings announcement.

4.1 Measures of analyst pessimism

Weather-induced pessimism likely impacts analysts deliverables in several ways. First, we

expect that analysts are more likely to issue buy/hold/sell recommendation downgrades when the weather

is unpleasant. Second, we expect that analysts experiencing unpleasant weather issue target prices that are

biased downward compared to future price realizations. Finally, we expect that analysts experiencing

22
See Saunders [1993]; Hirshleifer and Shumway [2003]; Chang et al. [2008]; Shon and Zhou [2009]; Goetzmann
et al. [2015]; and Bushee and Friedman [2015].

20
unpleasant weather will issue negatively biased EPS forecasts, relative to either future earnings

realizations or to the prevailing analyst consensus. We examine analysts annual EPS forecasts for the

subsequent fiscal year-end (i.e., year y+1 as opposed to the current fiscal year) because longer-window

forecasts require greater judgment and are likely more susceptible to analyst biases (Lin and McNichols

[1998]; Tversky and Kahneman [1974]). Our measures of analyst pessimism are as follows:

1. Rec_Chgi,j,d: a trinary variable equal to one if analyst i upgrades his/her previously-outstanding

buy/hold/sell recommendation within days [0, 2] of firm js earnings announcement on date d, zero if

there is no change, and negative one for downgrades.

2. Fcast_Biasi,j,d: analyst i's first subsequent year-end EPS forecast made within days [0, 2] of firm js

quarterly earnings announcement, less the future realized EPS, scaled by price as of the day prior to

the announcement, multiplied by 100. We retain only diluted EPS forecasts to improve comparability

with the IBES actual EPS value. Negative values represent pessimistic forecasts.

3. Fcast_Bias_v2i,j,d: the difference between analyst i's first subsequent year-end EPS forecast made

within days [0, 2] of firm js quarterly earnings announcement, less the consensus forecast value as of

the previous day, scaled by price as of the day prior to the earnings announcement, multiplied by 100.

Consensus forecasts are calculated as the median of all outstanding EPS forecasts issued or reviewed

within the trailing 180 days, retaining only the most recent forecast per analyst. Again, we retain only

diluted, annual EPS forecasts.

4. Tprice_Biasi,j,d: analyst is first 12-month target price made within days [0, 2] of firm js earnings

announcement, less the actual stock price 12 months in the future, scaled by price as of the target

price announcement date.

If weather-induced pessimism negatively biases analysts decision-making, then we expect lower

average Rec_Chg, Tprice_Bias, Fcast_Bias, and Fcast_Bias_v2.

4.2 Empirical analysis

Table 3, Panel A presents select coefficients from estimations of equation (1) for our analyst

21
pessimism measures using Unpleasant_Weather. These estimations suggest that Unpleasant_Weather is

unassociated with recommendation downgrades (column (1)), but significantly and negatively associated

with EPS forecasts and target price revisions (columns (2) through (4)). In terms of magnitudes, a roughly

one-standard-deviation increase in Unpleasant_Weather is associated with a pessimistic bias in two-year-

ahead forecasts 0.0163% of price. Relative to the average share price of $34.91, this bias equates to

roughly $0.0051 per share. Moving from the 5th to 95th percentiles of Unpleasant_Weather is associated

with a pessimistic bias of roughly (3.3 * $0.0051 =) $0.0168 per share. A similar association is observed

for Fcast_Bias_v2 in column (3). Finally, moving from the 5th to 95th percentile of Unpleasant_Weather

is associated with a target price bias of roughly (0.38% * 3.3=) 1.3% of price.

Table 3, Panel B replaces Unpleasant_Weather with Cloud. Results for Cloud are consistently

weaker in Panel B than in Panel A, but results in columns (2) and (3) still find a significantly negative

association between Cloud and EPS forecast biases. The insignificant coefficient on Cloud in column (4)

indicates that Unpleasant_Weather is likely a stronger driver of weather-induced mood than Cloud by

itself, which is consistent with arguments from prior research that weather should be measured as a

multidimensional effect. In sum, the results in Table 3 are consistent with unpleasant weather inducing

analyst pessimism that coexists with decreased activity.

As detailed in the Internet Appendix, our analyst pessimism results are qualitatively unchanged in

all of the robustness tests performed for our analyst activity analyses in Section 3.3. The Internet

Appendix also contains discussion and analyses of current year EPS forecasts. Our primary pessimism

tests focus on annual forecasts for year y+1, instead of the current fiscal year, for two interrelated reasons.

First, the effects of behavioral biases on decision-making are more pronounced in long-window forecasts

that are more uncertain and require greater judgment (Tversky and Kahneman [1974]). 23 Second, analysts

likely have a weaker incentive to be accurate in long-window forecasts, because there is ample time to

23
In our research setting, analysts long horizon forecasts involve greater judgment and are subject to more
uncertainty than shorter horizon forecasts because 1) prediction models are less accurate over long horizons, 2)
managers are less likely to provide guidance for year y+1 than for year y, and 3) up to three quarters of financial
information for the current fiscal year is already publicly known.

22
update their forecast before earnings are announced. 24 Using current year forecasts we fail to find a

significant relation between unpleasant weather and current year EPS forecast biases (see Internet

Appendix). Given that mood likely plays a larger role in uncertain contexts, the lack of a relation using

current year forecasts supports our interpretation that documented year y+1 biases are the result of

weather-induced moods.

5. Market pricing tests

The behaviors of equity analysts likely resemble those of market participants in general. Because

we find that weather affects the mood and behavior of analysts, weather could potentially impact the

mood and behavior of a sufficiently large number of investors to generate an observable effect on

equilibrium market prices. Prior research finds evidence consistent with weather-induced pessimism

causing investors to temporarily value firms more negatively. Our analyst pessimism tests support this

conclusion. In this section, we investigate whether inactivity due to weather-induced moods affects the

speed or completeness of the markets response to new information. Our predicted pricing effect is both

distinct from, and complementary to, existing research on how weather-induced pessimism affects

equilibrium market prices.

Our predictions about weather-induced mood, inactivity, and market pricing are closely related to

the limited attention literature in finance and accounting. The theory underlying this literature typically

assumes that market prices reflect a weighted average of risk-averse investors beliefs about firm value,

and that investors have limited capacity to process information in a timely manner. If a sufficient number

of investors face attention constraints and either trade with a delay or trade on incomplete information,

then these inattentive investors can impede the market price adjustment process. 25 Empirically, the

delayed price adjustment manifests as smaller stock returns per unit of earnings surprise at the time of the

24
Consistent with these arguments, Lin and McNichols [1998] find that analysts biases for underwriter clients are
only observable in longer-window forecasts and recommendations.
25
As discussed by Hirshleifer and Teoh [2003], even if attentive investors can identify mispricing, mispricing can
persist in equilibrium if those attentive investors are limited in the amount of risk they are willing to bear.

23
earnings announcement (i.e., smaller ERCs), followed by larger stock price drift as the initial

underpricing corrects over the subsequent quarter (i.e., larger PEAD). 26

Following the limited attention literature, we predict that short-window ERCs will be smaller and

PEAD will be larger if weather-induced mood causes investors to abstain from trading or to trade on an

incomplete information set during the announcement window. Instead of estimating a weighted average

weather experienced by all investors trading in a stock, we follow previous research on weather and stock

returns and investigate our market pricing prediction using weather in NYC, which is the location of the

highest concentration of capital market participants in the U.S. The primary tension in our prediction is

that market participants (including those in other locations and potentially experiencing better weather)

have an economic incentive to arbitrage away weather-induced mispricing. As noted previously, we stress

that our pricing tests lack the identification strength of our analyst-based tests but are provided as an

initial inquiry into the pricing effects of investor inactivity due to weather-induced moods.

5.1 Market pricing tests: Sample construction and variable measurements

Table 4, Panel A details our sample construction for our pricing test. We intersect Compustat,

IBES, and CRSP to obtain an initial sample of earnings announcements for the years 1990 through 2013.

We retain only ordinary common shares of U.S. public companies (CRSP share codes 10 and 11) and

drop observations with insufficient data to calculate unexpected earnings or the return and volume

dependent variables. To reduce the effects of outliers and errors, we drop observations with quarter-end

price below $1, earnings surprise in excess of price, or earnings announcement dates that are before or

more than one year after the fiscal quarter-end. Finally, we drop observations missing weather data or the

control variables discussed below, leaving a sample of 193,109 firm-announcement observations.

Our first set of market tests (labeled ERC tests) examine the mapping of unexpected earnings

26
Alternatively, weather-affected investors experiencing reduced activity might not adequately analyze pre-
announcement information and, therefore, overweight earnings news, yielding larger ERCs (De Bondt and Thaler
[1985]). We predict lower ERCs to be consistent with the bulk of the empirical evidence in the attention literature.

24
news into abnormal returns (AR) over a three-day ERC period starting with the firms earnings

announcement (i.e., days [0, 2]). 27 AR is calculated as the firms buy-and-hold return less the value-

weighted return of a portfolio of firms matched on quintiles of size and book-to-market, multiplied by

100. 28 Our second set of market tests (labeled PEAD tests) examine abnormal returns over days [3, 75]

relative to the firms earnings announcement (AR_PEAD). We use a PEAD measurement window

spanning 75 days because Bernard and Thomas [1990] find that much of the PEAD following quarter q

occurs in the short window around the earnings announcement for quarter q+1; in our sample, the use of a

75-day PEAD window allows us to capture approximately 90% of q+1 earnings announcements.

Unexpected earnings are calculated as the IBES actual EPS less the most recent median consensus

forecast prior to the earnings announcement, scaled by quarter-end price. To reduce the effects of stale

and outlier forecasts, we require that the consensus is no more than 100 days old and is based on at least

two analysts estimates. We sort unexpected earnings into deciles to create the variable UE.

Weather data for our market tests are obtained and assembled via the same process used for our

analyst activity tests. We construct a daily time series of NYC weather by retaining weather data from the

closest available NOAA weather station from the central latitude and longitude coordinates of the

NYSEs zip code. Cloud_NYC, Wind_NYC, and Rain_NYC are the logged and standardized average

hourly cloud cover, wind speed, and rainfall observed over the ERC measurement window, and

Unpleasant_Weather_NYC is the first principal component of Cloud_NYC, Rain_NYC, and Wind_NYC.

We discuss results only for Unpleasant_Weather_NYC as opposed to also discussing results for Cloud for

brevity and because our analyst-based tests indicate that Unpleasant_Weather is better specified. Table 4,

Panel B presents descriptive statistics. All variables are further defined in the Appendix.

27
Our three-day ERC measurement window is chosen to mimic the timing used in our analyst tests. Results are
qualitatively unchanged using a two-day [0,1] ERC returns window.
28
Quintile cut-offs and portfolio returns are sourced from Ken Frenchs website (November 2015). Portfolio
assignments are based on market value as of the end of June preceding the earnings announcement, and book-to-
market as of the trailing December.

25
5.2 Empirical analysis: Market pricing tests

5.2.1 ERC and PEAD regressions

Our first tests are based on separate ERC and PEAD regressions, estimated using OLS:

AR =1(UE)+ 2(UE* Unpleasant_Weather_NYC) + k(Controls) + (2a)

k(UE*Controls) + k(Date) +

AR_PEAD =1(UE)+ 2(UE* Unpleasant_Weather_NYC)+ k(Controls)+ (2b)

k(UE*Controls) + k(Date)+

AR, AR_PEAD, UE, and Unpleasant_Weather_NYC are as previously defined. Controls include severe

weather (Severe_Weather), firm market value (MVE), earnings persistence (Persist), earnings volatility

(Volatility), institutional ownership (InstOwn), stock market beta (Beta), book-to-market (BTM), lag

between the quarter-end and earnings announcement date (RepLag), decile ranking of the number of firms

announcing earnings that day (Busy), an indicator for negative earnings (Loss), an indicator for the fourth

fiscal quarter (FQ4), an indicator for Friday earnings announcements (Friday), and indicators for weeks 1

through 52 to control for seasonal trends (w1-w52). Date fixed effects control for unobserved

characteristics of each earnings announcement date and also absorb the main effects of Weather, Friday,

Busy, and w1-w52 since these variables do not vary across firms within a date. All control variables are

de-meaned before calculating the interactions with UE such that the main effects can be interpreted at the

sample averages. Standard errors are clustered by date. The coefficients 1 and 1 are the main ERC and

PEAD coefficients, respectively, when Unpleasant_Weather_NYC equals 0 (i.e., at the sample average).

The coefficients 1 and 1 are expected to be positive, consistent with the well-documented positive

relations between UE and both the initial price response and subsequent price drift to earnings news. The

coefficients 2 and 2 estimate the differences in ERC and PEAD for increasingly unpleasant weather.

Our hypothesis predicts 2 < 0 and 2 > 0, which would be consistent with unpleasant weather in NYC

causing delayed market price responses to earnings news.

In addition to estimating these models using the full sample, we also estimate these models after

splitting the sample into two time periods: pre-2005 and post-2004. We present these separate estimations

26
for two reasons. First, our analyst-level analysis uses data that ends in 2004, so partitioning allows us to

document the magnitude of these pricing effects in the time period contemporaneous with our analyst-

level sample. Second, Green, Hand, and Soliman [2011] and Chordia, Subrahmanyam, and Tong [2014]

find that earnings pricing anomalies attenuate or disappear due to increased liquidity and lower trading

costs in recent years, and Chakrabarty, Moulton, and Wang [2015] find that attention-based mispricing

(i.e., reduced ERCs and greater PEAD, like we examine here) is mitigated by high-frequency, algorithmic

trading in 2008 and 2009. Thus, partitioning the sample at roughly the median date allows us to

investigate whether any weather-based mispricing dissipates in the latter half of our sample.

Table 5, Panels A and B present select coefficients from estimations of equations (2a) and (2b).

Coefficient estimates on our control variables are untabulated for parsimony. In Panel A, our full sample

estimations (without and with controls in columns (1) and (2), respectively) document significant negative

coefficients on the interaction term UE*Unpleasant_Weather_NYC, consistent with a muted response to

earnings news in the presence of unpleasant weather. Focusing on the PEAD results in Panel B, our full

sample estimations (in columns (1) and (2)) document significantly positive coefficients on the interaction

term UE*Unpleasant_Weather_NYC. This positive relation is consistent with greater PEAD following

those earnings announcements associated with unpleasant weather. Finally, as predicted, results are

substantially stronger for both the ERC and PEAD analyses in the first half of the sample (column (3)

versus column (4)), with an insignificant PEAD result in the post-2004 sample. In sum, our market

analyses are consistent with unpleasant weather in NYC causing delays in market participants reactions

to earnings news, although this effect has attenuated over time.

5.2.2 Robustness test: Are the ERC/PEAD results driven by pessimism?

Most prior studies on weather-induced pessimism predict and find that unpleasant weather

unconditionally lowers all firms stock prices (e.g., Saunders [1993] and Hirshleifer and Shumway

[2003]). Our models use adjusted stock returns and daily fixed effects to eliminate the average effects of

weather on stock returns affecting all sample firms, and include UE*Week interactions to eliminate

27
seasonal differences in price responses to earnings news that may correlate with weather. However, it is

possible that daily weather-induced pessimism has a multiplicative effect with UE that is not controlled

for in our model. If so, weather-induced pessimism would cause market participants to underreact to

positive news and overreact to negative news, which could be obscured in our pooled ERC tests.

Panel A of Table 6 provides graphical evidence that is inconsistent with such a pessimism

explanation. The dotted (solid) line plots the average ERC-window return across each UE decile for good

(bad) weather days, where good (bad) weather is defined as Unpleasant_Weather < -0.5 (> +0.5). If

pessimism were driving our results, we would observe that the dotted line is consistently lower (i.e., more

negative) than the solid line across all UE deciles. Instead, the dotted line is attenuated towards zero for

both negative and positive UE, which is consistent with mitigated price responses instead of

pessimistically biased responses. To formally test for this effect, we repeat the ERC tests from Table 5

after splitting UE into two variables: UE_Pos and UE_Neg. The former (latter) takes the value of UE for

earnings surprises greater than or equal to zero (less than zero), and zero otherwise. Results in Panel B of

Table 6 find that the interactions between UE_Pos * Unpleasant_Weather_NYC are significantly negative

in all estimations, consistent with underreactions to good earnings news in the presence of unpleasant

weather. Importantly, the interactions between UE_Neg * Unpleasant_Weather_NYC are also all

negative, consistent with underreactions (not overreactions) to bad earnings news when the weather is

unpleasant. Finally, t-tests find no evidence of differences in the magnitudes of the interactions.29

5.2.3 Additional analysis: Volume tests

Weather-induced inactivity may also cause investors to avoid or delay trading on new

information, causing lower trading volumes at earnings announcements when the weather is unpleasant.

29
Finding muted announcement returns to both positive and negative earnings surprises in the presence of
unpleasant weather somewhat contrasts with Shon and Zhou [2009], which finds unconditionally optimistic
response to earnings announcements when NYC weather is extremely sunny. The Internet Appendix provides
further discussion of how our findings relate to those in Shon and Zhou [2009], including how our models are
intentionally designed to remove the effects of unconditional weather-induced pessimism found in prior papers.

28
We measure abnormal trading volume (Abnormal_Volume) as the firms average daily shares traded

during the ERC window divided by the total shares outstanding, minus the firms trailing average over

days [-70, -5]. We then estimate variations of the following OLS model:

Abnormal_Volume = 1(Unpleasant_Weather_NYC) + k(Controls) + (3)

Controls include both signed and absolute unexpected earnings, the controls from the previous pricing

models, and, in select models, abnormal market volume. The coefficient 1 captures the effects of

unpleasant weather on abnormal trading volume during the earnings announcement window.

The first three columns of Table 7 present results estimating equation (3) for

Unpleasant_Weather_NYC using the full sample; the fourth and fifth columns present estimations for pre-

2005 and post-2004. Columns (1) and (2) document a negative relation between unpleasant weather and

trading volume, without and with control variables. Column (3) adds Abnormal_Market_Volume and the

results are qualitatively unchanged. Columns (4) and (5) indicate that volume is decreasing with

Unpleasant_Weather in both the earlier and later halves of our sample, but that the coefficient magnitude

and statistical significance are greater in the pre-2005 period. Together, these volume tests support our

hypothesis that weather-induced negative moods impede market responses to earnings announcements.

5.3 Linking the analyst and pricing tests: Average weather in analysts locations

Our pricing predictions thus far are predicated on the notion that unpleasant weather potentially

affects investors in general, thereby leading to reduced ERCs and higher PEAD. However, it is also

possible that the decreased analyst responsiveness caused by unpleasant weather directly impacts ERCs

and PEAD by reducing or delaying the supplementary materials that investors use in trading decisions. In

this section, we attempt to link our pricing tests with our analyst results by replacing NYC weather in our

pricing models with the average analyst weather. To the extent that analysts contribute to delayed price

formation, then we should observe that unpleasant weather in analysts locations is associated with

smaller ERCs and larger PEAD. A significant weakness of these tests is that analysts locations are likely

29
correlated with investors locations, making it impossible to identify whether unpleasant weather impacts

pricing through analysts versus through co-located investors.

We calculate Unpleasant_Weather_Analyst as the average weather over the three-day ERC

window experienced by the analysts in our analyst dataset, requiring available data for a minimum of two

analysts. Results in columns (1) and (2) of Table 8 present results of our standard ERC and PEAD models

from Table 5 using Unpleasant_Weather_NYC, but restricting the sample to only those observations with

available Unpleasant_Weather_Analyst, and find similar results, although significance is reduced.

Columns (3) and (4) replace the NYC weather with Unpleasant_Weather_Analyst and produce

qualitatively similar results, suggesting that the analysts average weather affects the market price

response to earnings news. However, given that over half of analysts are located in NYC, the two weather

specifications are highly correlated at 70%. Thus, columns (5) and (6) include both NYC and Analyst

weather. Neither coefficient loads individually, but the linear combination of the two is statistically

significant. Falsification tests in our Internet Appendix fail to find similar results if we replace analysts

weather at the zip-code level with false weather from elsewhere in the U.S., indicating that the

ERC/PEAD results relate to the analysts locations in particular. These results are consistent with NYC

and Analyst weather complementing each other; i.e., we observe pricing effects when the weather is

unpleasant in both locations, but the effect is mitigated when only one of the two measures is unpleasant.

6. Conclusion

Using a large sample of geographically dispersed analysts, we find compelling evidence

supporting a causal relation between weather and individual market participants activity levels following

earnings announcements. Although we cannot directly observe the mechanism driving this relation, we

believe that our research design provides reasonable confidence that the effect is driven by weather-

induced mood as opposed to physical effects. Our market tests provide descriptive evidence consistent

with unpleasant weather systematically affecting the efficiency of the price formation process around a

key information event, as evidenced by reduced ERCs and greater PEAD. Additional analyst-based tests

30
find evidence of weather-induced pessimism coexisting with weather-induced decreased activity.

Our paper contributes in three ways. First, we introduce a weather-related inactivity prediction

to the financial economics literature. This prediction, and our related findings, should be of interest to the

analyst literature, as well as the broader literature studying the capital market effects of limited attention.

Second, we provide support for prior capital markets research finding evidence consistent with weather-

induced pessimism affecting aggregate market pricing. Finally, we contribute to psychology and labor

economics literatures by providing compelling evidence that unpleasant weather affects the work output

of at least one type of professional with salient economic incentives to avoid such biases.

31
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 Appendix: Variable Specifications
Panel A: Analyst tests
Unless otherwise noted, weather variables are measured from the date of the earnings announcement through the
date of the analysts first recommendation, target price, or annual EPS forecast release, released within trading days
[0, 2] of the earnings announcement. For analysts that take no actions, weather is measured for the full three-day
period starting with the earnings announcement. Non-binary variables are winsorized at the 1st and 99th percentile.

Measure Description
Cloud Average hourly cloud cover. Measured in eighths (octiles or oktas) of sky coverage, logged,
and standardized
Fcast_Bias Annual EPS forecast for the subsequent fiscal year issued within trading days [0, 2] of the
earnings announcement less actual EPS, scaled by price, multiplied by 100. Positive (negative)
values are consistent with optimism (pessimism).
Fcast_Bias_v2 Annual EPS forecast for the subsequent year less the outstanding consensus as of the previous
day, scaled by price, multiplied by 100. Positive (negative) values are consistent with optimism
(pessimism).
Fcast_Delay Logged number of days between the earnings announcement and when the analyst makes his/her
first annual EPS forecast announcement. Restricted to analysts making a forecast over trading
days [0,2].
Fcast_Error Logged absolute value of Fcast_Bias. Larger values are consistent with greater analyst error.
Make_Fcast Binary variable equal to one if the analyst issues an annual EPS forecast within trading days [0,
2] of the earnings announcement.
Make_Rec Binary variable equal to one if the analyst makes a buy/hold/sell recommendation within trading
days [0, 2] of the earnings announcement. Restricted to analysts who made a recommendation
within the previous year.
Make_Tprice Binary variable equal to one if the analyst issues a target price recommendation within trading
days [0, 2] of the earnings announcement. Restricted to analysts who issued a target price within
the previous year.
MVE Firms market value of equity on the day prior to the earnings announcement, in millions.
Logged when used in regression specifications.
Rain Average hourly rainfall. Measured in millimeters, logged, and standardized
Rec_Before The level of the analysts buys/hold/sell recommendation prior to the earnings announcement.
Integer values coded from 0 for sell to 4 for strong buy.
Rec_Chg Difference between an analysts buy/hold/sell recommendation issued within trading days [0, 2]
of the earnings announcement and the analysts buy/hold/sell recommendation before the
earnings announcement. Positive (negative) values are consistent with optimism (pessimism).
Severe_Weather Binary variable equal to one if any of the following NOAA Storm Events Database event codes
take place in the analysts county during the weather measurement window: Flash Flood,
Flood, Thunderstorm Wind, Lightening, Tornado, Funnel Cloud, Hail, Heavy
Rain, Debris Flow, Dust Devil, Frost/Freeze, High Surf, High Wind, Storm
Surge/Tide, Strong Wind, Wildfire, and Winter Weather.
Tprice_Before The analysts outstanding target price prior to the earnings announcement, scaled by price two
days prior to the earnings announcement.
Tprice_Bias 12-month target price issued within trading days [0, 2] of the earnings announcement less the
actual stock price 12 months in the future, scaled by price as of the target price announcement
date. Positive (negative) values are consistent with optimism (pessimism).
Tprice_Error Logged absolute value of Tprice_Bias. Larger values are consistent with greater analyst error.
Unpleasant_Weather First principal component of combining Cloud, Rain, and Wind.
Wind Average hourly wind speed. Measured in miles per hour, logged, and standardized

37
 Panel B: Market response test variables
The ERC window in all tests is days [0, 2] relative to the earnings announcement. The PEAD window is days [3,
75]. Non-binary variables are winsorized at the 1st and 99th percentile.

Variable Description

Abnormal_Market_ Average Abnormal_Volume for all CRSP shares.

Volume
Abnormal_Volume Abnormal trading volume. Calculated as the average daily shares traded divided by the total
outstanding shares during the ERC window, minus the average volume over days -70 through -5.
Analysts Number of individual analyst forecasts included in the IBES consensus. Variable numest.
AR Buy-and-hold portfolio-adjusted return measured from the earnings announcement through two
trading days following the earnings announcement. The portfolio value-weighted returns are
based on quintiles of market value and book-to-market, as sourced from Ken Frenchs website.
Multiplied by 100 to be in percentage points.
AR_PEAD Buy-and-hold portfolio-adjusted return measured from the day after the AR window through 75
days following the earnings announcement. Multiplied by 100 to be in percentage points.
Beta Stock market beta, calculated over days [-252, -5] relative to the earnings announcement.
BTM Book value of common equity divided by market value of equity as of the end of the quarter.
Busy Decile ranking of all earnings announcements on Compustat on the day of the firms earnings
announcement. Sorted into deciles by year within sample.
Cloud_NYC Average hourly cloud cover over the ERC window. Measured in octiles of sky coverage, logged,
and standardized.
Date Indicators for each earnings announcement date.
FQ4 Indicator for the fourth fiscal period.
Friday Indicator for Friday earnings announcements.
InstOwn Institutional ownership, as sourced from the Thomson 13f database.
Loss Indicator variable for IBES EPS < 0.
MVE Firm size, calculated as log of market value of equity as of the end of the fiscal quarter.
Persist Earnings persistence, calculated as the AR(1) coefficient of regressing current earnings on prior
years earnings in the same quarter, calculated over trailing four years.
Rain_NYC Average hourly rainfall over the ERC window. Measured in millimeters, logged, and
standardized.
Replag Reporting lag, calculated as the logged number of days between quarter-end and the earnings
announcement.
Severe_Weather Binary variable equal to one if any land-based severe weather events from the NOAA Storm
Events Database take place in New York City during the ERC window.
UE Decile of unexpected earnings, calculated as actual EPS per IBES minus the most recent
consensus, scaled by price as of the end of the fiscal quarter. The most recent consensus must be
no older than 100 days and based on a minimum of two individual analyst estimates.
UE_Neg Variable equal to UE for unexpected earnings < 0, and zero otherwise.
UE_Pos Variable equal to UE for unexpected earnings >= 0, and zero otherwise.
Unpleasant_Weather First principal component of combining Cloud_NYC, Rain_NYC, and Wind_NYC, calculated over
_NYC the ERC window.
Unpleasant_Weather Average Unpleasant_Weather across locations of all analysts following the company.
_Analyst
Volatility Earnings volatility, standard deviation of seasonal difference in EPS, calculated over trailing four
years.
Wind_NYC Average hourly wind speed over the ERC window. Measured in miles per hour, logged, and
standardized.
w1-w52 Indicators for each of weeks 1 through 52, in which the earnings announcement occurs.

38
 Table 1: Descriptive Statistics
Panel A presents descriptive data on our sample selection. The initial sample includes firm-announcement
observations with available data in Compustat, CRSP, and I/B/E/S that have the same earnings announcement date
in both Compustat and I/B/E/S. Data availability limits the analyst tests to 1997 2004. Firm-announcement-analyst
observations consist of all analysts who issue at least one annual forecast in both the year prior and subsequent to the
earnings announcement. Panel B presents summary statistics on our analyst test variables. See the Appendix for
variable definitions. Unlogged values are provided for information but logged specifications are used in regression
tests. Panel C presents Pearson correlation coefficients between our main weather and primary analyst activity
dependent variables. The superscripts ***, **, * indicate two-tailed statistical significance at the 1%, 5%, and 10%
level, respectively.

Panel A: Sample selection procedures for analyst activity analyses

Observations
Firm-announcements 141,712

Firm-announcement-analyst observations 873,362

Less: missing from the IBES Translation File -45,875
Less: analysts following fewer than two firms or four firm-announcements -4,751
Less: firm-announcements with fewer than two analysts -17,837
Less: missing analyst locations -141,223
Less: analysts outside the U.S. - 18,609
Less: missing weather data -9,090
Final firm-announcement-analyst sample 635,826

Unique firm-announcements 94,469

Unique analysts 5,456
Unique analyst-quarters 67,554
Unique cities 139

Average analysts per firm-announcement, excluding singleton firm-announcements 7.2

and analyst-quarters
Average unique cities per firm-announcement, excluding singleton firm- 3.5
announcements and analyst-quarters

39
 Table 1: Descriptive Statistics (Continued)
Panel B: Summary statistics

Residual
N Mean 25 Pct. Median 75 Pct. Std. Dev. Std. Dev.
Dependent variables
Make_Fcast 635,826 0.469 0.000 0.000 1.000 0.499 0.332
Make_Rec 375,914 0.053 0.000 0.000 0.000 0.225 0.177
Make_Tprice 238,287 0.260 0.000 0.000 1.000 0.438 0.319
Fcast_Delay (unlogged) 298,053 1.011 1.000 1.000 1.000 0.600 0.347
Fcast_Delay 298,053 0.647 0.693 0.693 0.693 0.335 0.199
Rec_Chg 375,914 -0.004 0.000 0.000 0.000 0.212 0.168
Fcast_Bias 179,546 0.997 -0.793 0.218 2.105 5.135 0.897
Fcast_Bias_v2 183,445 -0.340 -0.488 0.000 0.236 1.777 0.842
Tprice_Bias 59,854 0.237 -0.163 0.112 0.464 0.883 0.117

Weather variables
Cloud (untransformed) 635,826 4.812 3.495 5.000 6.417 2.044
Cloud 635,826 0.000 -0.361 0.255 0.707 1.000
Rain (untransformed) 635,826 0.121 0.000 0.004 0.108 0.260
Rain 635,826 -0.010 -0.508 -0.486 0.029 0.941
Wind (untransformed) 635,826 8.336 6.245 7.867 10.055 2.957
Wind 635,826 0.003 -0.613 -0.002 0.665 0.967
Unpleasant_Weather 635,826 -0.003 -0.525 0.012 0.504 0.967

Control & Other Variables

Severe_Weather 635,826 0.051 0.000 0.000 0.000 0.219
Share Price 635,686 34.91 15.20 26.67 41.75 477.06
MVE 635,686 9,355 505 1,728 6,549 23,098

Panel C: Select Pearson correlation coefficients

Cloud Rain Wind Unpleasant Unpleasant_Weather

_Weather _NoRain
1. Cloud 1
2. Rain 0.283*** 1
3. Wind 0.138*** 0.054*** 1
4. Unpleasant_Weather 0.792*** 0.712*** 0.445*** 1
5. Unpleasant_Weather_NoRain 0.754*** 0.224*** 0.750*** 0.823*** 1
6. Make_Rec -0.017*** -0.011*** -0.001 -0.016*** -0.012***
7. Make_Tprice -0.031*** -0.019*** -0.005** -0.030*** -0.024***
8. Make_Fcast -0.107*** -0.052*** -0.036*** -0.103*** -0.095***
9. Fcast_Delay 0.133*** 0.050*** 0.067*** 0.131*** 0.134***
10. Rec_Chg -0.001 0.000 0.000 0.000 -0.001
11. Fcast_Bias 0.029*** -0.006** 0.006** 0.018*** 0.024***
12. Fcast_Bias_v2 -0.013*** 0.010*** -0.002 -0.004* -0.010***
13. Tprice_Bias 0.039*** -0.011*** 0.012*** 0.024*** 0.035***

40
 Table 2: Influence of Unpleasant Weather on Analyst Activity
This table presents select coefficients from various estimations of the following OLS model:

Activity = 1Weather + kControls + kAnalyst_Qtr + kFirm_Announcement +

Activity is one of our four proxies for analyst activity. Panels A and B present regressions using
Unpleasant_Weather and Cloud, respectively. Fixed effects are untabulated. Observations with singleton fixed
effects are dropped prior to estimation. See Appendix for variable definitions. Standard errors are clustered by
earnings announcement date. The superscripts ***, **, * indicate two-tailed statistical significance at the 1%, 5%,
and 10% level, respectively.

Panel A: Unpleasant_Weather

HA (1) (2) (3) HA (4)

Dependent variable: Make_Fcast Make_Rec Make_Tprice Fcast_Delay

Unpleasant_Weather - -0.0192 -0.0024 -0.0075 + 0.0241

[-4.87]*** [-2.92]*** [-3.22]*** [6.32]***
Severe_Weather -0.0769 -0.0139 -0.0395 0.0685
[-8.60]*** [-5.02]*** [-3.59]*** [7.81]***
Rec_Before -0.0016
[-1.86]*
Tprice_Before -0.0088
[-4.43]***

Fixed Effects Yes Yes Yes Yes

N 622,354 349,855 218,557 269,146
R-Squared 0.560 0.392 0.480 0.651
Adjusted R-squared 0.422 0.076 0.223 0.465

N: Firm-Announce Fixed Effects 86,601 68,102 42,234 50,258

N: Analyst-Qtr Fixed Effects 61,754 51,602 30,042 43,165

Panel B: Cloud

HA (1) (2) (3) HA (4)

Dependent Variable: Make_Fcast Make_Rec Make_Tprice Fcast_Delay

Cloud - -0.0188 -0.0016 -0.0073 + 0.0224

[-5.58]*** [-2.03]** [-3.52]*** [6.52]***
Severe_Weather -0.0876 -0.0154 -0.0427 0.0817
[-9.87]*** [-5.66]*** [-4.03]*** [10.56]***
Rec_Before -0.0016
[-1.87]*
Tprice_Before -0.0088
[-4.43]***

Fixed Effects Yes Yes Yes Yes

N 622,354 349,855 218,557 269,146
R-squared 0.560 0.392 0.480 0.651
Adjusted R-squared 0.422 0.076 0.223 0.465

41
 Table 3: Influence of Unpleasant Weather on Analyst Pessimism

This table presents select coefficients from various estimations of the following OLS model:

Pessimism = 1Weather + kControls + kAnalyst_Qtr + kFirm_Announcement +

Pessimism is one of our proxies for analyst pessimism. Panels A and B present regressions using
Unpleasant_Weather and Cloud, respectively. Fixed effects are untabulated. Observations with singleton fixed
effects are dropped prior to estimation. See Appendix for variable definitions. Standard errors are clustered by
earnings announcement date. The superscripts ***, **, * indicate two-tailed statistical significance at the 1%, 5%,
and 10% level, respectively.

Panel A: Unpleasant_Weather

(1) (2) (3) (4)

HA Rec_Chg Fcast_Bias Fcast_Bias_v2 Tprice_Bias

Unpleasant_Weather - 0.0004 -0.0163 -0.0147 -0.0038

[0.49] [-3.03]*** [-3.08]*** [-2.20]**
Severe_Weather 0.0004 -0.0193 0.0090 -0.0007
[0.15] [-0.78] [0.43] [-0.06]
Rec_Before -0.0509
[-60.48]***
Tprice_Before 0.2257
[12.56]***
Fcast_Delay -0.0227 0.1129
[-1.49] [6.68]***

Fixed Effects Yes Yes Yes Yes

N 349,855 149,570 154,303 35,215
R-squared 0.401 0.966 0.761 0.982
Adjusted R-squared 0.090 0.942 0.590 0.957

N: Firm-Announce. Fixed Effects 68,102 31,857 32,613 11,154

N: Analyst-Qtr Fixed Effects 51,602 31,214 31,723 9,632

Panel B: Cloud

(1) (2) (3) (4)

HA Rec_Chg Fcast_Bias Fcast_Bias_v2 Tprice_Bias

Cloud - 0.0004 -0.0101 -0.0135 -0.0018

[0.48] [-2.04]** [-2.96]*** [-1.29]
Severe_Weather 0.0006 -0.0295 0.0015 -0.0031
[0.24] [-1.22] [0.07] [-0.30]
Rec_Before -0.0509
[-60.48]***
Tprice_Before 0.2258
[12.57]***
Fcast_Delay -0.0237 0.1130
[-1.55] [6.70]***

Fixed Effects Yes Yes Yes Yes

N 349,855 149,570 154,303 35,215
R-squared 0.401 0.966 0.761 0.982
Adjusted R-squared 0.090 0.942 0.590 0.957

42
 Table 4: Market Pricing Analysis Descriptive Statistics
Panel A presents descriptive data on our sample selection procedures. The initial samples include firm-
announcement observations with available data in Compustat, CRSP, and I/B/E/S, and that have the same earnings
announcement date in both Compustat and I/B/E/S. The market pricing tests span 1990 through 2013. Panel B
presents summary statistics. See the Appendix for variable definitions.

Panel A: Sample selection

Observations
Firm-announcements with validated earnings announcement dates 327,467
Drop: CRSP share codes other than 10 and 11 (ordinary, common, US shares) -17,486
Drop: missing UE, abnormal volume, or abnormal stock returns -112,245
Drop: price < $1 or unexpected earnings > price -1,232
Drop: earnings announcements before or more than one-year after quarter-end -106
Drop: missing control variables -1,577
Drop: missing weather data -1,712
Final firm-announcement sample 193,109

Panel B: Summary statistics

Mean 25 Pct. Median 75 Pct. Std. Dev.

Dependent & Weather Variables
AR 0.045 -3.994 -0.010 4.119 8.373
AR_PEAD 0.052 -12.370 -0.958 10.736 22.632
Abnormal Volume 0.660 -0.010 0.223 0.821 1.288
Unpleasant_Weather_NYC 0.000 -0.575 0.088 0.660 0.980

Other Variables
UE (not in deciles) -0.0008 -0.0009 0.0003 0.0018 0.0114
MVE 6.729 5.518 6.593 7.793 1.668
BTM 0.544 0.270 0.455 0.707 0.417
Replag 3.327 3.091 3.332 3.584 0.380
Analysts 1.784 1.099 1.792 2.303 0.727
Persist 0.332 -0.048 0.232 0.706 0.599
Volatility 0.426 0.094 0.200 0.445 0.675
Beta 1.064 0.659 1.011 1.403 0.562
InstOwn 0.590 0.397 0.612 0.791 0.249
FQ4 0.251 0.000 0.000 1.000 0.434
Loss 0.179 0.000 0.000 0.000 0.384
Friday 0.062 0.000 0.000 0.000 0.242
Busy 4.441 2.000 4.000 7.000 2.847
Severe_Weather 0.042 0.000 0.000 0.000 0.200

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 Table 5: Influence of Unpleasant Weather on the Market Pricing of Earnings News
This table presents select coefficients from various estimations of the following OLS model:

AR or AR_PEAD = 0 +1(UE) + 2(UE* Unpleasant_Weather_NYC) + k(Controls) + k(UE*Controls)

+ k(Date) +
Panel A (B) presents regressions using AR (AR_PEAD) as the dependent variable. Column (1) estimates the model
without controls, while Columns (2)-(4) include untabulated controls for Severe_Weather, MVE, Persist, Volatility,
InstOwn, Beta, BTM, Loss, FQ4, Friday, Busy, Replag, and w1-w52. All variables are de-meaned before calculating
the interactions. Date fixed effects are untabulated. Column (3) estimates the model using pre-2005 data. Column
(4) includes post-2004 data. Standard errors are clustered by earnings announcement date. The superscripts ***, **,
* indicate two-tailed statistical significance at the 1%, 5%, and 10% level, respectively.

Panel A: ERC Tests (AR as dependent variable)

HA (1) (2) (3) (4)

Sample Period: Full Full Pre-2005 Post-2004

UE 0.8200 0.8250 0.7323 0.9446

[90.35]*** [101.42]*** [56.25]*** [69.90]***
UE*Unpleasant_Weather_NYC - -0.0889 -0.0660 -0.0747 -0.0440
[-9.34]*** [-7.54]*** [-5.12]*** [-3.98]***

Controls & Interactions No Yes Yes Yes

Date fixed effects Yes Yes Yes Yes
N 193,109 193,109 103,282 89,827
Adjusted R-squared 0.0842 0.0978 0.0640 0.1369

Panel B: PEAD Tests (AR_PEAD as dependent variable)

HA (1) (2) (3) (4)

Sample Period: Full Full Pre-2005 Post-2004

UE 0.2797 0.2120 0.2793 0.1117

[12.29]*** [9.47]*** [7.15]*** [3.36]***
UE*Unpleasant_Weather_NYC + 0.0640 0.0539 0.1448 -0.0032
[2.78]*** [2.31]** [3.36]*** [-0.12]

Controls & Interactions No Yes Yes Yes

Date fixed effects Yes Yes Yes Yes
N 193,109 193,109 103,282 89,827
Adjusted R-squared 0.0169 0.0214 0.0238 0.0185

44
 Table 6: ERC Tests by Positive versus Negative Earnings Surprise
Panel A plots average ERC-window returns within each UE decile, separately depending on whether the weather in
NYC is good or bad. Good (bad) weather is defined as Unpleasant_Weather_NYC < -0.5 (> +0.5). Panel B presents
select coefficients from various estimations of the following OLS model:

AR =0 +1(UE_Pos) + 2(UE_Neg) + 3(UE_Pos*Unpleasant_Weather_NYC)

+ 4(UE_Neg* Unpleasant_Weather_NYC) + k(Controls) + k(UE*Controls) + k(Date) +

The variable UE_Pos (UE_Neg) takes the value of UE for earnings surprises greater than or equal to zero (less than
zero), and zero otherwise. All other variables are unchanged from Panel A of Table 5. Controls are untabulated for
brevity. Standard errors are clustered by earnings announcement date. The superscripts ***, **, * indicate two-tailed
statistical significance at the 1%, 5%, and 10% level, respectively.

Panel A: Plot of ERC-window returns by UE decile and good versus bad NYC weather

Panel B: ERC regression results by good verus bad UE

HA (1) (2) (3) (4)

Sample Period: Full Full Pre-2005 Post-2004

UE_Pos 0.8123 0.8222 0.7325 0.9384

[82.55]*** [89.53]*** [51.81]*** [61.53]***
UE_Neg 0.7419 0.8019 0.7336 0.8943
[22.65]*** [24.13]*** [16.20]*** [17.67]***
UE_Pos*Unpleasant_Weather_NYC - -0.0859 -0.0671 -0.0769 -0.0463
[-6.49]*** [-5.29]*** [-3.47]*** [-2.92]***
UE_Neg*Unpleasant_Weather_NYC - -0.0924 -0.0647 -0.0721 -0.0411
[-5.68]*** [-4.11]*** [-3.01]*** [-2.01]**

Controls & Interactions No Yes Yes Yes

Date fixed effects Yes Yes Yes Yes
N 193,109 193,109 103,282 89,827
Adjusted R-squared 0.0843 0.0978 0.0639 0.1369

F-Test of joint sig. [43.88]*** [28.78]*** [13.11]*** [8.17]***

Tests of Coeff. Differences

(UE_Pos*Unpleasant_Weather_NYC)
(UE_Neg*Unpleasant_Weather_NYC) -0.0065 0.0024 0.0048 0.0052
[-0.29] [0.11] [0.14] [0.18]

45
 Table 7: Influence of Unpleasant Weather on Trading Volume

This table presents select coefficients from various estimations of the following OLS model:

Abnormal_Volume = 1(Unpleasant_Weather_NYC) + k(Controls) +

Abnormal Volume is the firms share turnover during the earnings announcement period [0, 2] minus normal trading
volume in the trailing days [-75, -5]. Untabulated controls include signed and absolute UE deciles, Severe_Weather,
MVE, Persist, Volatility, InstOwn, Beta, BTM, Loss, FQ4, Replag, Friday, Busy, and w1-w52. Columns (3)-(5) also
include an additional control for the average abnormal volume for all CRSP firms. Column (4) estimates the model
using pre-2005 data. Column (5) includes post-2004 data. Controls and fixed effects are untabulated for brevity.
Standard errors are clustered by earnings announcement date. The superscripts ***, **, * indicate two-tailed
statistical significance at the 1%, 5%, and 10% level, respectively.

HA (1) (2) (3) (4) (5)

Sample Period: Full Full Full Pre-2004 Post-2005

Unpleasant_Weather_NYC - -0.0693 -0.0524 -0.0455 -0.0659 -0.0268

[-10.54]*** [-9.96]*** [-9.76]*** [-9.76]*** [-4.11]***

Control variables No Yes Yes Yes Yes

Abnormal Market Volume No No Yes Yes Yes

N 193,109 193,109 193,109 103,282 89,827

Adjusted R-squared 0.0028 0.1288 0.1317 0.1063 0.1360

46
 Table 8: Pricing Tests Using Analysts Weather

This table presents select coefficients from various estimations of the following OLS model:

AR or AR_PEAD = 0 +1(UE) + 2(UE* Unpleasant_Weather_NYC) +

2(UE*Unpleasant_Weather_Analyst)
+ 3(Unpleasant_Weather_Analyst) + k(Controls) + k(UE*Controls) + k(Date) +

Unpleasant_Weather_NYC is unpleasant weather in NYC during the three-day ERC window.

Unpleasant_Weather_Analyst is the average unpleasant weather across analysts in our analyst test dataset. Columns
(1) and (2) present results of the ERC and PEAD regressions including only Unpleasant_Weather_NYC, but
including only observations for which we have analyst weather data. Columns (3) and (4) present results of ERC and
PEAD regressions including only Unpleasant_Weather_Analyst. Columns (5) and (6) include both weather
variables. All other controls and specifications are unchanged from Table 5. Main effects, controls, and fixed effects
are untabulated. Standard errors are clustered by earnings announcement date. The superscripts ***, **, * indicate
two-tailed statistical significance at the 1%, 5%, and 10% level, respectively.

(1) (2) (3) (4) (5) (6)

AR AR_PEAD AR AR_PEAD AR AR_PEAD

UE 0.7975 0.2306 0.7978 0.2311 0.7976 0.2321

[47.79]*** [4.47]*** [47.70]*** [4.48]*** [47.73]*** [4.50]***
UE*Unpleasant_Weather_NYC -0.0358 0.1611 -0.0239 0.1110
[-1.80]* [2.70]*** [-0.90] [1.43]
UE*Unpleasant_Weather_Analyst -0.0262 0.1153 -0.0149 0.0632
[-1.85]* [2.58]*** [-0.78] [1.09]

Linear Combination
UE*Unpleasant_Weather_NYC + (UE
*Unpleasant_Weather_Analyst -0.0388 0.1742
[1.96]** [2.90]***

Controls, Main Effects, Fixed Effects Yes Yes Yes Yes Yes Yes
Date fixed effects Yes Yes Yes Yes Yes Yes
N 70,648 70,648 70,648 70,648 70,648 70,648
Adjusted R-squared 0.0669 0.0276 0.0669 0.0275 0.0669 0.0276

47