National air pollution and the cross-section of stock returns in China

Samuel Kirk-Reeve, Sebastian A. Gehricke*, Xinfeng Ruan, Jin E. Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


This study examines the impact of air pollution on the cross-section of China A-share returns. We create a China national air quality index (AQI) and show that stocks that are most sensitive to air pollution generate lower risk-adjusted returns than less air pollution-sensitive stocks. These results are robust to controls for common cross-sectional return predictors and build upon existing studies linking air pollution, investor mood and financial market behaviour. In line with established literature on the home bias in stock pricing, we further show that a national air quality index more effectively captures air pollution effects in order-driven markets, such as China, than the local air quality near the respective stock exchange. We find that this home bias of investors located all throughout China explains why the local air quality indices used in previous studies led to mixed results.

Original languageEnglish
Article number100572
JournalJournal of Behavioral and Experimental Finance
Publication statusPublished - Dec 2021
Externally publishedYes


  • Air pollution
  • China
  • Investor mood
  • Stock returns


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