In a paper on weather and stock market returns, the researchers write: There is strong correlation between sunlight exposure and behavior. Among other things, lack of sunlight exposure is linked to depression and suicide. We study how market returns are related to the daily level of clouds and the duration over European cities from 1980 to 1992 and we find a strong negative relationship. We suggest traders to exploit the return patterns by trading every day based on our results. a) Suppose that you are given the daily returns (rmt) for New York Stock Exchange and the corresponding daily risk-free rates (rft) for the past 20 years. You also have the full weather report for New York. Describe in detail how you will investigate the cloudy effect in a regression setting, while taking into account of other known calendar anomalies. Clearly define your variables

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The market efficiency will be advocating that all the information have already been d... View the full answer