WEATHER EFFECTS ON RETURNS AND VOLATILITY: EVIDENCE FROM MOROCCO
WEATHER EFFECTS ON RETURNS AND VOLATILITY: EVIDENCE FROM MOROCCO

Summary/Abstract: This paper seeks to examine the empirical association between weather and the Casablanca stock market returns and volatility. We choose stock indexes of three weather-sensitive sectors that account for 40% of Morocco’s GDP to test the impact of weather on the Moroccan economy. We use an autoregressive linear regression model for stock returns with a GARCH(1,1) process to capture time-varying volatility. Instead of temperature, we introduced two variables, Cooling Degree Days and Heating Degree Days, which constitute the most commonly used underlying for weather derivatives. Our goal is to motivate the introduction of these financial products in Morocco. Indeed, weather derivatives might be a good hedging instrument for weather risk.

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