Does Weather Impact Stock Returns?

In the research task, I have identified and analyzed Hirshleifer and Shumway (2003), Saunders (1993), and Trombley (1997) as credible sources to use in the assignment – to discuss whether or not weather impact stock returns. A new body paragraph is developed to assess the argument; both sides are presented in a logical and descriptive manner together with credible sources. One other source is being decided to include in the paragraph, which will then be examined in this essay in addition to the rhetorical situation, style and method, and research incorporation.

Introduction

The target audience of the paragraph written below is for those who are interested in the field of behavioral finance in an academic writing level. This implies that, the tone and language will be straightforward and in a logical manner, several finance terms are also included since it is targeted at related studies’ scholars. Similarly, the purpose of this paragraph is to give an overview of the behavioral effects of weather on stock market, provided with both sides of the argument, and a short conclusion to answer the rhetorical question.

Paragraph

Does weather impact stock returns? Psychologists have long discovered that, to a certain extent, the level of sunlight influences individual’s moods, judgment, and behavior. This assertion then incorporated into the study of the behavioral effects on stock prices, where seminar papers represented by Hirshleifer and Shumway (2003) and Saunders (1993) had brought the evidence of the sunshine effect on stock returns. Their findings suggested that the fundamental value of stocks not rationally priced, but are subject to investors’ emotional states instead. However, the legitimacy of their work had been questioned with doubt, one of which the research findings from Trombley (1997) shown Saunders’ result as insignificant and, therefore, does not hold. Furthermore, it is believed that the market makers and news providers accounted for the widening of the bid-ask spread rather than individual investors (Goetzmann and Zhu 2005).  That is to say, it is the behavior of market makers that induced the change of asset prices when reacting to macroeconomic announcements. Therefore, it can be concluded that the weather is unlikely to result in the movements of stock prices as a consequence of investors’ emotional states.

Reflection

The paragraph started with a rhetorical question intended to grab reader’s attention, which acted as a stimulus to the reader - read the paragraph in order to find the answer to the question. Since the paragraph is an overview of the big picture, the description for “sunshine effect” and researchers’ findings are not fully explained. Also, several finance discipline related terms are used as technical language, such as “macroeconomic announcements”, “market makers”, and “bid-ask spread”. I decided not to explain the concepts and to use these technical terms because I assume that, these are within the knowledge of the intended audience.

The method of paragraph development is through the use of description, where the aim of the study and research findings described to support the stance of the author (myself).

The arrangement of the paragraph follows a logical structure, which is related to the use of logos – a type of rhetorical appeals, it attempts to persuade readers with logical flow of ideas. I employ the strategy similar to the ACAR structure, which it is stand for “Argument”, “Counter-Argument” and “Rebuttal”. It is similar but not quite as “Rebuttal” is not in use, rather, the counter argument is supported by a short conclusion. The contrastive transition such as “However” indicates a change of opinion – in this case – the counter argument. “Furthermore”, “That is to say” and “Therefore” are used to support and sum up the counter argument. Therefore, the targeted audience could perceive a clear structure and stance of the author (myself).