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Uncovering the invisible effect of air pollution on stock returns: A moderation and mediation analysis

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  • Xu, Minya
  • Wang, Yaqiong
  • Tu, Yundong

Abstract

Numerous studies have demonstrated the significant role of environmental factors on trading behaviors. Air pollution, one of the most critical environmental stressors, may also trigger collective mood swings and influence investment decisions. Few and inconsistent results have been found regarding the relationship between air pollution and stock returns. We claim that public awareness may be a missing key, which is a vital antecedent of mood, playing an intermediate role in the link between air pollution and stock returns. The present study explores and verifies the underlying mechanism of the relationship between air pollution and stock returns. We demonstrate the joint effect of the current day’s air condition and consecutive days of air pollution on stock returns through awareness.

Suggested Citation

  • Xu, Minya & Wang, Yaqiong & Tu, Yundong, 2021. "Uncovering the invisible effect of air pollution on stock returns: A moderation and mediation analysis," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319309924
    DOI: 10.1016/j.frl.2020.101646
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    Cited by:

    1. Su, Yuandong & Lu, Xinjie & Zeng, Qing & Huang, Dengshi, 2022. "Good air quality and stock market returns," Research in International Business and Finance, Elsevier, vol. 62(C).

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