When Stock Market Investors Breathe Polluted Air

Abstract

The finance literature documents a strong relationship between mood effects and stock market returns. Air pollution is one of the factors affecting people both physiologically and mentally. This study examines the impact of air pollution sourced mood change on stock returns in Turkey. We find that lag of air pollution in the three most populated cities of Turkey where the majority of investors live is negatively related to stock returns, even when other variables are controlled. On the contrary, the relationship doesn't exist for the air pollution in other cities of Turkey.