Pollution and Performance: Do Investors Make Worse Trades on Hazy Days?

Jiekun Huang, Nianhang Xu () and Honghai Yu ()
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Nianhang Xu: School of Business, Renmin University of China, Beijing 100872, China;
Honghai Yu: School of Management and Engineering, Nanjing University, Nanjing 210017, China

Management Science, 2020, vol. 66, issue 10, 4455-4476

Abstract: This paper examines the relation between air pollution and individual investors’ trading behavior and performance. Using unique data on stock trades by 87,504 individuals from 34 cities in China, we find a negative relation between air pollution and trade performance. This result is obtained after controlling for investor-year fixed effects and date fixed effects, as well as local weather conditions. More strikingly, abnormal trade performance decreases monotonically with the levels indicating the severity of air pollution. Furthermore, we find evidence suggesting that air pollution makes investors more susceptible to the disposition effect and attention-driven buying behavior. Overall, the results highlight a hitherto-unexplored cost that ambient air pollution imposes on stock market investors.

Keywords: Individual investors; air pollution; trade performance; behavioral bias (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (63)

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