Air pollution, individual investors, and stock pricing in China

Qinin Wu and Jing Lu

International Review of Economics & Finance, 2020, vol. 67, issue C, 267-287

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.

Keywords: Air pollution; Asset pricing; Individual investors; Investor mood (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:67:y:2020:i:c:p:267-287

DOI: 10.1016/j.iref.2020.02.001

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