Air pollution, behavioral bias, and the disposition effect in China

Jennifer (Jie) Li, Massimo Massa, Hong Zhang*, Jian Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)641-673
Number of pages33
JournalJournal of Financial Economics
Issue number2
Publication statusPublished - Nov 2021

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

User-Defined Keywords

  • Air pollution
  • Mutual funds
  • The disposition effect


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