Air pollution and household stock market participation

Hongwu Gan, Mengmeng Guo, Jian Li, Geng Niu and Yang Zhou

Journal of Banking & Finance, 2025, vol. 172, issue C

Abstract: We investigate whether air pollution affects household stock market participation. Using representative household survey data in China, we find that households significantly reduce their financial risk taking when exposed to heavy air pollution. This finding is robust to an instrumental variable analysis and a regression discontinuity test based on the Huai River policy. To explore the underlying mechanisms, we find that air pollution significantly impairs health, increases unemployment risk, impedes cognitive performance, and dampens mood. We further show that these channels explain a non-trivial proportion of the relationship between air pollution and stock market participation. Our study sheds light on the far-reaching influence of air pollution on households’ well-being from the perspective of portfolio choice.

Keywords: Air pollution; Stock market participation; Health risk; Unemployment risk; Cognitive ability; Mood (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:172:y:2025:i:c:s0378426625000184

DOI: 10.1016/j.jbankfin.2025.107397

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