Jennifer (Jie) Li, Massimo Massa, Hong Zhang, Jian Zhang
Inspired by the recent health science findings that air pollution affects mental health and cognition, we examine whether air pollution can intensify the cognitive bias observed in the financial markets. Based on a proprietary data set obtained from a large Chinese mutual fund family consisting of complete trading information for more than 773,198 accounts in 247 cities, we find that air pollution significantly increases investors’ disposition effects. Analysis based on two plausible exogenous variations in air quality (the vast dissipation of air pollution caused by strong winds and the Huai River policy) supports a causal interpretation. Mood regulation provides a potential mechanism. © 2019 Elsevier B.V.
Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, 211 West Huaihai Road, Shanghai, 200030, China; INSEAD, 1 Ayer Rajah Avenue, 138676, Singapore; PBC School of Finance, Tsinghua University, 43 Chengfu Road, Haidian District, 100083, Beijing, China; Faculty of Business and Economics, University of Hong Kong, Hong Kon, China
