Department of Economics, University of Ottawa
120 University Private
Ottawa, Canada K1N 6N5
Institutional Affiliation: University of Manitoba
NBER Working Papers and Publications
|October 2016||The Effect of Air Pollution on Investor Behavior: Evidence from the S&P 500|
with Anthony Heyes, Matthew Neidell: w22753
We provide detailed empirical evidence of a direct effect of air pollution on the efficient operation of the New York Stock Exchange, linking short-term variations in fine particulate matter (PM2.5) in Manhattan to movements in the S&P 500. The effects are substantial – a one standard deviation increases in ambient PM2.5 reduces same-day returns by 11.9% in our preferred specification – and remarkably robust to a variety of specifications and a battery of robustness and falsification checks. Furthermore, the intra-day effects that we observe are difficult to reconcile with competing hypotheses. Despite investors being dispersed geographically we find strong evidence that the effect is strictly local in nature, consistent with the high concentration of market influencers in New York. While ...