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Air pollution, individual investors, and stock pricing in China

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  • Wu, Qinin
  • Lu, Jing

Abstract

We construct a firm-level index for measuring the mood of individual investors induced by air pollution in the Chinese stock market. In a setting where individual investors dominate the stock market, we examine how the individual investor mood affects stock pricing. We find that the investor mood only affects individual investors’ trading behaviors, thereby validating the individual investor mood indices. Further, a pessimistic individual investor mood decreases liquidity and volatility, eventually causing a decline in stock returns. The mispricing caused by the individual investor mood cannot be eliminated by using risk-factor models, thereby implying the limited efficiency of the Chinese stock market.

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  • Wu, Qinin & Lu, Jing, 2020. "Air pollution, individual investors, and stock pricing in China," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 267-287.
    • Handle: RePEc:eee:reveco:v:67:y:2020:i:c:p:267-287
    DOI: 10.1016/j.iref.2020.02.001
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    7. Liu, Fengqi & Kang, Yuxin & Guo, Kun & Sun, Xiaolei, 2021. "The relationship between air pollution, investor attention and stock prices: Evidence from new energy and polluting sectors," Energy Policy, Elsevier, vol. 156(C).
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    9. Jiawen Luo & Qun Zhang, 2024. "Air pollution, weather factors, and realized volatility forecasts of agricultural commodity futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(2), pages 151-217, February.
    10. Zhuhua Jiang & Rangan Gupta & Sowmya Subramaniam & Seong-Min Yoon, 2021. "The Effect of Air Quality and Weather on the Chinese Stock: Evidence from Shenzhen Stock Exchange," Sustainability, MDPI, vol. 13(5), pages 1-20, March.
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    More about this item

    Keywords

    Air pollution; Asset pricing; Individual investors; Investor mood;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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