Air Pollution, Affect, and Forecasting Bias: Evidence from Chinese Financial Analysts

Rui Dong (), Raymond Fisman, Yongxiang Wang () and Nianhang Xu ()
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Rui Dong: University of China
Yongxiang Wang: University of Southern California
Nianhang Xu: Renmin University of China

No dp-345, Boston University - Department of Economics - The Institute for Economic Development Working Papers Series from Boston University - Department of Economics

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)
Pages: 35 pages
Date: 2019-12
New Economics Papers: this item is included in nep-cna, nep-ene, nep-env and nep-for
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Citations: View citations in EconPapers (21)

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Journal Article: Air pollution, affect, and forecasting bias: Evidence from Chinese financial analysts (2021)
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