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Air pollution, local bias, and stock returns

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  • Ding, Xiaoya
  • Guo, Mengmeng
  • Yang, Tao

Abstract

Building on research linking environmental factors to investors’ sentiments and the local bias literature, we posit that there is a negative relation between air pollution and a firm's stock return. Consistent with our hypothesis, we find that firms located in cities that experience higher levels of air pollution exhibit lower stock returns. In line with our central hypothesis, we observe the air pollution effect is stronger among firms that are more likely to be held by local investors, such as younger firms, firms that have lower institutional ownership, and firms covered by fewer analysts.

Suggested Citation

  • Ding, Xiaoya & Guo, Mengmeng & Yang, Tao, 2021. "Air pollution, local bias, and stock returns," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320303305
    DOI: 10.1016/j.frl.2020.101576
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    Cited by:

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    4. Guo, Lei & Han, Xing & Li, Youwei, 2023. "The smog that hovers: Air pollution and asset prices," Finance Research Letters, Elsevier, vol. 53(C).
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    6. Guo, Liwen & Cheng, Zhiming & Tani, Massimiliano & Cook, Sarah & Zhao, Jiaqi & Chen, Xi, 2022. "Air Pollution and Entrepreneurship," GLO Discussion Paper Series 1196, Global Labor Organization (GLO).
    7. Jiang, Dequan & Li, Weiping & Shen, Yongjian & Zhang, Ying, 2022. "Does air quality affect firms’ investment efficiency? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 1-17.
    8. Shen, Lihua & Lu, Xinjie & Luu Duc Huynh, Toan & Liang, Chao, 2023. "Air quality index and the Chinese stock market volatility: Evidence from both market and sector indices," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 224-239.

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