Predicting seasonal weather patterns has become a focus of national meteorological agencies around the world. However, understanding the economic impact of these projections remains an evolving area of research. A recent study by Professor Derek Lemoine of the University of Arizona and Dr. Sarah Kapnick, formerly of the National Oceanic and Atmospheric Administration, shows that these predictions have clear economic value. Their research, published in Nature Communications, highlights how traders rely on seasonal weather forecasts, such as El Niño and winter forecasts, to manage risk and make decisions that affect broad sectors of the economy. El Niño is a weather pattern caused by changes in Pacific Ocean temperatures that has a significant impact on global weather.
Researchers analyzed nearly a decade of financial trading data and found that markets respond to uncertainty in seasonal weather forecasts. Uncertainty here refers to the range of possible outcomes that businesses and traders need to plan for. Professor Lemoine said: “This study reveals how improvements in forecast accuracy translate into economic activity.” They found that even a small improvement in the accuracy of El Niño forecasts could significantly reduce the risks faced by businesses while encouraging trading Investors invest more money in strategies to protect against potential losses. These findings highlight the high risk for industries affected by changing weather conditions.
Seasonal weather forecasts, such as predictions of El Niño and winter weather, have a significant impact on the way financial traders assess risk. Research shows that these forecasts affect the value of companies that make up a large portion of the overall stock market. This shows how multiple industries, including transportation, manufacturing and healthcare, rely on such forecasts to prepare for climate-related changes. Interestingly, agriculture, which is often considered to be heavily dependent on weather, has had limited response to these forecasts, possibly because the focus of seasonal forecasts is winter.
One of the most surprising findings is that even companies with advance warning are unable to adequately prepare for seasonal weather risks. While companies use forecasts to predict and plan for potential impacts, the fact that traders still invest in protective financial strategies suggests that adaptation is often challenging or costly. Adaptation refers to the steps companies take to adapt to anticipated weather changes, such as changing supply chains or hedging financial risks. “If businesses can prepare without incurring significant costs, seasonal weather risks will be less likely to occur in financial markets,” Dr. Kapnick noted. This highlights why accurate and reliable weather forecasts are so valuable.
The study also shows that the importance of seasonal forecasts increases over time. As the accuracy and reliability of NOAA’s forecasting systems continue to improve, financial markets react more strongly to these forecasts. Accuracy refers to the level of detail in a prediction, while reliability indicates how often the prediction is correct. This trend underscores the need for continued investment in scientific advancement to improve the accuracy of forecasts and ensure they are effectively communicated to those who rely on them.
This study provides strong evidence that financial markets not only pay close attention to seasonal weather forecasts, but also measure their value. The impact extends beyond the financial world, showing that investment in weather forecasting technology can benefit society in many ways. Future research will aim to refine predictive models and explore how predictive information affects various sectors and communities.
Journal reference
Lemoine, D. and Kapnick, S. “Financial markets value skilled forecasts of seasonal climate.” Nature Communications (2024). Digital number:
