Air Pollution: Bad Bet for the Stock Market and Our Children

BY ON November 16, 2016

Woman upset over the stock market

Our lives and the well-being of the planet are incontrovertibly associated with the ramifications of air pollution. Global warming, acid rain, deterioration of the earth’s ozone layer, and health concerns are all part of the picture.

As if that isn’t enough to ponder, now the financial sector has weighed in with a report from the National Bureau of Economic Research. It has presented findings connecting the rise and fall of the New York Stock Exchange (NYSE) with the levels of fine particulate matter (PM2.5) in the area of lower Manhattan.

Huh?

Well, since New York City is home to the NYSE, the people who work there are subject to the impact of hyperlocal air pollution.

The paper’s three authors have put forth the theory “that pollution decreases the risk attitudes of investors via short-term changes in brain and/or physical health.”

What does that actually mean?

It references the influence of air pollution on investor behavior and “mood or cognitive function,” and relates it to the efficiency of markets.

The hypothesis suggests that the thought process of investors has been impacted by particulate matter, which leads them to be more risk averse. As a result, these investors go for safer picks — like bonds — which lowers returns on the market.

This theory was arrived at by using fifteen years of stats that kept tabs on the S & P 500 index. These numbers were then compared to the levels of fine particulate matter in the vicinity of the Wall Street area.

The results indicated a direct relationship to when the fine particulate matter in air pollution was high (based on a sixty-minute measurement).

This isn’t the first time that the premise has been examined.

The Journal of Economic Psychology presented a study in 2011 that examined the relationship between air pollution, “negative mood effects,” and stock market returns.

That analysis had an expanded field of research. It compared four stock exchanges in the United States to the Air Quality Index. The paper concluded that “air pollution is negatively related to stock returns, even when controlling for other variables.”

Again, one of the takeaways was the correlation between “bad mood and risk aversion.”

It’s all quite interesting. More grist for the mill. Glad to see that the money people are looking at the downside of not being able to breathe and how it affects the markets.

Better yet, I think we would all be well-served to invest in the future of our environment by doing everything we can to move to renewable energy and away from fossil fuels.

UNICEF just released the report, “Clear the Air for Children.” It shows that “600,000 children under age 5 die every year from diseases caused by or exacerbated by outdoor and indoor air pollution, especially in poor nations.”

The future of our children is one venture we can’t afford to speculate on. (Tweet this)

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TOPICS: Air Pollution, Economics, New York