The smog that hovers: Air pollution and asset prices

Air pollution affects mental well-being (mood) and amplifies behavioral biases. We test the adverse impact of air pollution on asset prices through the lens of dual-listed stocks. Using regression analysis and difference-in-differences tests, we document that a sharp increase of air pollution (in one location) leads to an immediate deterioration of the price parity of dual-listed shares, which is consistent with the air pollution-induced depressive symptoms. Moreover, increased institutional ownership attenuates the adverse impact of air pollution on asset prices, as institutions are less susceptible to air pollution-induced symptoms than individuals.