Anya Khanthavit
Thammasat University, Bangkok 10200, Thailand
akhantha@tu.ac.th
Abstract:
This study proposed a state-space model that allows time-varying weather effects on asset returns. It resolves
the model misspecification of the unrealistic, fixed effect assumption commonly made by previous weather studies. The
model was applied to examine the weather effects on Thai government bond returns from July 2, 2001, to December
30, 2015. Kalman filtering was used in the estimation. The study found that the weather effects were time-varying.
They were wandering in the early sample period but disappearing in the later period. The effects were not co-integrated
with the market’s inefficiency levels.
Keywords: model misspecification, weather effects
