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Air pollution and mediation effects in stock market, longitudinal evidence from China

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  • Xu, Alan

Abstract

By obtaining a novel proprietary city-level panel dataset of stock returns and trading volume in China, this article investigates the effect of air pollution on the stock market while avoiding the possible confounding factors reported in previous similar studies. The analysis finds that there are significant negative effects generated by air pollution on stock returns and trading volume, and these effects manifest themselves on successive days. Air pollution affects stock returns on the same day, which then mediates the effect of air pollution on trading volume on the next day. Similar negative effects are also found in several different pollutants. Our results validate the negative relationship of air pollution on the stock market in literature with longitudinal evidence, and illustrate the steps of the air pollution effect in the stock market.

Suggested Citation

  • Xu, Alan, 2022. "Air pollution and mediation effects in stock market, longitudinal evidence from China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002101
    DOI: 10.1016/j.irfa.2022.102252
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    Cited by:

    1. Roy, Suvra & Nguyen, Harvey & Visaltanachoti, Nuttawat, 2023. "Be nice to the air: Severe haze pollution and mutual fund risk," Global Finance Journal, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Air pollution; Stock returns; Trading volume; Mediation effect;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • 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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