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Environmental preference, air pollution, and fund flows in China

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  • Jo, Hoje
  • Kim, Hee-Eun
  • Sim, Myounghwa

Abstract

This study investigates how air pollution affects investor behavior using Chinese environmental mutual funds (Green funds) over 2014–2019. We find that an increase in air pollution measured by the Air Quality Index (AQI) is accompanied by increases in Green fund flows. We also find that the positive flow-AQI association remains robust under various measures of AQI, greener fund names, or difference-in-difference tests on the air-pollution prevention law enactment. However, we do not find such evidence that the alternative fund manager channel can affect the flow-AQI relationship. Combined evidence supports the proposition that environmentally conscious investors derive their utility primarily from non-pecuniary considerations. We suggest that air pollution is a crucial determinant of Chinese environmental fund flows, an important finding for emerging economies globally.

Suggested Citation

  • Jo, Hoje & Kim, Hee-Eun & Sim, Myounghwa, 2022. "Environmental preference, air pollution, and fund flows in China," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:pacfin:v:72:y:2022:i:c:s0927538x2200018x
    DOI: 10.1016/j.pacfin.2022.101723
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    Cited by:

    1. Ren, Xiaohang & Zeng, Gudian & Sun, Xianming, 2023. "The peer effect of digital transformation and corporate environmental performance: Empirical evidence from listed companies in China," Economic Modelling, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    Air pollution; Environmental; social; and governance (ESG); Green funds; Mutual fund flows; Emerging market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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