Air temperature and sovereign bond returns

Document Type

Article

Source of Publication

Financial Markets, Institutions and Instruments

Publication Date

1-1-2024

Abstract

The relationship between air temperature and sovereign bond returns is founded on competing paradigms: macroeconomic, behavioral and energy demand-based. Which of these theoretical mechanisms receives support from data? To answer this, we examined four decades of bond data from 31 countries. Overall, daily temperature positively affects government bond returns. A 10°F rise leads to an increase in sovereign bond returns between 0.22 and 0.85 basis points. We also document evidence of asymmetric and nonlinear price responses to both temperature levels and shocks. Our results survive a battery of robustness checks and lend support to the macroeconomic and behavioral paradigms, albeit not the energy demand-based view.

ISSN

0963-8008

Publisher

Wiley

Disciplines

Business

Keywords

air temperature, asset pricing anomalies, behavioral paradigm, energy demand-based view, international government bond markets, macroeconomic channels, risk aversion, seasonal binary variable l affective disorder, sovereign bond returns

Scopus ID

85182986314

Indexed in Scopus

yes

Open Access

no

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