The Impact Of Air Quality On Chinese Stock Market Trading Behavior

The efficient market hypothesis constitutes the cornerstone of modern financial theory,but since the 1980 s,it has been found that there are some excessive fluctuations and many "financial anomalies" in the financial market,such as small company effect,price earnings ratio effect,January effect,etc.,which are inconsistent with the traditional financial theory.Researchers began to integrate the theory of psychology,especially behavioral science into finance,which promoted the birth of behavioral finance.Behavioral finance holds that investors are not completely rational,and investors’ psychology and behavior have a significant impact on the price decision and change of the securities market.In the second half of 2011,the smog weather in many cities in China for several consecutive days made PM2.5,a special term that was once little known,become popular rapidly.The problem of air pollution has attracted the attention of governments and the public.Air pollution not only increases the incidence of respiratory diseases and cardiovascular diseases,but also affects the behavior of the stock market due to the low light and low pressure in the gloomy haze.The increasing of air pollutants will also increase the government’s efforts and determination to control air pollution.When the dissatisfaction and worry about environmental issues become the hot spot of public concern and discussion,high pollution enterprises will face more pressure of public opinion and the risk of government sanctions.According to the existing behavioral finance theory and the reality of China’s economy and finance,this paper aims to study the impact of air quality on the trading behavior of the stock market.The main problems of this paper include: first,whether air quality can affect the mood of investors,then affect their cognition and risk preference,and affect the stock price of listed companies.Second,whether there are differences between good air quality and poor air quality in the impact of these two different external environments on the stock market,whether high-quality air quality will raise the stock price by bringing positive emotions to investors,whether serious pollution of the air environment will cause people’s mood to be depressed,and whether the degree of risk aversion will increase and make the stock price move downward.Third,whether air quality has the same impact on the stock prices of different types of listed companies,such as polluting and non polluting enterprises,state-owned enterprises and private enterprises.This paper divides the theoretical mechanism of air quality affecting stock market into investor sentiment channel and investor expectation channel.The former mainly refers to the impact of air quality on the stock market by affecting the mood,mood and risk preference of investors in the headquarters of listed companies,that is,local investors.The latter mainly refers to the impact of air quality on the future development of polluting enterprises by the government policy effect and public opinion attention effect,and on the stock price of related enterprises.n this paper,1380 sample data of stock prices of enterprises in 19 provinces(districts and cities)from January 2014 to June 2019,and the air quality index(AQI)of the cities where these enterprises are registered(Headquarters),which are listed as key pollution control areas in China,are selected.Panel data multiple linear regression,tool variable method,breakpoint regression,time series co integration test,SVAR model and other methods are used Conduct empirical research.The empirical study shows that there is a significant negative correlation between AQI index and the stock return of listed companies,and a significant positive correlation between AQI index and the risk of stock price collapse,that is,the deterioration of air quality will reduce the stock return and increase the risk of stock price collapse.Furthermore,the breakpoint regression analysis shows that when the air quality is in the best and good grades,the better air quality will bring positive effect to the stock return.With the gradual deepening of air pollution,the stock return has a significant downward jump.The regression analysis shows that the negative impact of air quality change on the stock return is from high to low: private pollution enterprises﹥private non pollution enterprises ﹥ State-owned pollution enterprises ﹥ State-owned non pollution enterprises.The impact on the risk of stock price collapse is similar.The increase of air pollution on the risk of private pollution enterprises’ stock price collapse is nearly three times that of non pollution enterprises,which proves that air quality has an expected channel in the mechanism of affecting stock return.The innovation of this paper includes: in the research content,this paper introduces the risk index of stock price collapse as the explanatory variable to reflect the trading situation of the stock market for the first time.The risk of stock crash refers to the phenomenon of sharp drop caused by investors selling stocks in large quantities,which can better reflect the impact of negative news on the stock market.In terms of variable selection,this paper refers to Deschênes and greenstone(2011)and other studies on temperature change,uses the days of different levels of air quality in a month as a measure of air quality in different places,uses different methods to measure air quality with existing literature,and retains more information on air quality.In terms of research methods,this paper not only studies the impact of air pollution aggravation on China’s overall stock market,but also verifies the positive effect of high-quality air quality on the stock market,compares the relationship between air quality and four different types of enterprises,namely,private pollution enterprises,state-owned pollution enterprises,private non pollution enterprises and state-owned non pollution enterprises,and makes further expansion on the basis of previous research Exhibition and supplement.Air pollution is a typical example of negative externality,which brings higher health cost and environmental cost to the society.With the enhancement of public awareness of environmental protection,people will pursue higher quality green and healthy life.This paper provides some reference for further study on how to set up a reasonable mechanism for market intervention,effective governance and elimination of negative externalities of air pollution,how to understand the capital market more rationally for investors,how to manage the stock market more effectively for financial market regulators,and how to prevent systemic risks.