Anthony Heyes and Soodeh Saberian, economics professors at the University of Ottawa, in collaboration with Matthew Neidell from Columbia University, compared daily data from the S&P 500 index (financial performace of 500 of the most widely traded stocks in the U.S.) with air quality data from an EPA sensor near to Wall Street and they found a connection between higher pollution and lower stock performance.
Their conclusion? Air pollution brings down the stock market. “Every time air quality decreases, we notice a 12% reduction in stock returns - Heyes explains - Two factors are involved in this process. First, being exposed to bad air, even just for a day, affects your emotional state and puts you in a depressed mood that reduces your cognitive capability. This negatively affects how you feel and how good you are at thinking. Second, bad moods and lower cognitive capabilities tend to reduce your appetite for risk and low risk tolerance is associated with lower returns”.
Ensuring the data were reliable, Anthony Heyes and his colleagues measured the air quality in several areas of Manhattan, always getting the same result, and took into consideration many factors that could be important for the analysis. “We took care about everything that might be important for the research for example temperature, precipitation and weather - Heyes continues - It’s hard to control everything. No one does it perfectly and that's why we also do falsification checks. The study found that these variables do not affect the end result”. The three professors are interested in understanding the nonhealth outcomes of bad air. For a long time people have studied how poor air quality affects health outcomes such as strokes, heart attacks and depression but now they want to understand how bad air affects things like productivity and performance. “Research shows that people perform less well across a variety of tasks on polluted days than on less polluted days. Humans are very sensitive, more sensitive than they think, to the environment they’re in - the professor concludes - If stock prices are going up or down because of behavior arising from pollution, thais is a bad thing for the efficiency of the market. I'm not saying that cleaner air will make stock prices go up. I'm saying that cleaner air, especially in New York, will make the stock market work better”.