Air Pollution, Behavioral Bias, and the Disposition Effect in China

78 Pages Posted: 28 Jun 2017 Last revised: 14 Oct 2019

See all articles by Jennifer (Jie) LI

Jennifer (Jie) LI

INSEAD; Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Jian Zhang

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: October 11, 2019

Abstract

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.

Keywords: Air Pollution, The Disposition Effect, Mutual Funds

JEL Classification: G02, G10, Q5

Suggested Citation

LI, Jennifer (Jie) and Massa, Massimo and Zhang, Hong and Zhang, Jian, Air Pollution, Behavioral Bias, and the Disposition Effect in China (October 11, 2019). Available at SSRN: https://ssrn.com/abstract=2993763 or http://dx.doi.org/10.2139/ssrn.2993763

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

Jian Zhang

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
478
Abstract Views
2,677
rank
59,734
PlumX Metrics