Air Pollution and Household Stock Market Participation
Hongwu Gan, Mengmeng Guo,Jian Li, Geng Niu, Yang Zhou
Published : March 2025
URL to this Article: https://www.sciencedirect.com/science/article/pii/S0378426625000184?via%3Dihub=#abs0001
Abstract
We investigate whether air pollution affects household stock market participation. Using representative household survey data in China, we find that households significantly reduce their financial risk taking when exposed to heavy air pollution. This finding is robust to an instrumental variable analysis and a regression discontinuity test based on the Huai River policy. To explore the underlying mechanisms, we find that air pollution significantly impairs health, increases unemployment risk, impedes cognitive performance, and dampens mood. We further show that these channels explain a non-trivial proportion of the relationship between air pollution and stock market participation. Our study sheds light on the far-reaching influence of air pollution on households' well-being from the perspective of portfolio choice.
Keywords
Air pollution;Stock market participation;Health risk;Unemployment risk;Cognitive ability;Mood