Air pollution, affect, and forecasting bias: Evidence from Chinese financial analysts

Rui Dong, Raymond Fisman, Yongxiang Wang and Nianhang Xu

Journal of Financial Economics, 2021, vol. 139, issue 3, 971-984

Abstract: We document a negative relation between air pollution during corporate site visits by investment analysts and subsequent earnings forecasts. After accounting for analyst, weather, and firm characteristics, an extreme worsening of air quality from “good/excellent” to “severely polluted” is associated with a more than 1 percentage point lower profit forecast, relative to realized profits. We explore heterogeneity in the pollution-forecast relation to understand better the underlying mechanism. Pollution only affects forecasts that are announced in the weeks immediately following a visit, indicating that mood likely plays a role, and the effect of pollution is less pronounced when analysts from different brokerages visit on the same date, suggesting a debiasing effect of multiple perspectives. Finally, there is suggestive evidence of adaptability to environmental circumstances – forecasts from analysts based in high pollution cities are relatively unaffected by site visit pollution.

Keywords: Pollution; Forecasting bias; Investment analysts; Adaptation (search for similar items in EconPapers)
JEL-codes: D91 G41 Q5 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (76)

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Related works:
Working Paper: Air Pollution, Affect, and Forecasting Bias: Evidence from Chinese Financial Analysts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:3:p:971-984

DOI: 10.1016/j.jfineco.2019.12.004

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