Fresh Air Eases Work – The Effect of Air Quality on Individual Investor Activity

Fresh air eases work—the effect of air quality on individual investor activity
Steffen Meyer and Michaela Pagel
Review of Finance, Volume 28, Issue 3, May 2024, Pages 1105–1149,

Globally, air pollution is linked to millions of premature deaths, and recent evidence suggests that it affects productivity, cognitive function, and performance in physically demanding jobs. In financial markets, studies show a correlation between air quality and trade performance, with pollution levels affecting the S&P 500 returns and individual investors’ portfolio performance. This paper focuses on the impact of air pollution on financial behavior in Germany. It shows that air pollution reduces investors’ propensity to log in to their brokerage accounts and trade. 

To do so, we use data from a German online brokerage and federal environmental agencies at an intra-day level. Using a unique panel dataset from 2003 to 2015, the study finds that air pollution reduces investors’ willingness to log in and trade, with both contemporaneous and lagged pollution levels impacting trading decisions. The effects are stronger for abnormal increases in pollution, suggesting that even modest pollution levels can affect productivity.

Concerns regarding potential confounding factors like weather and traffic are addressed through statistical controls and sensitivity analyses. Overall, the findings emphasize the need to consider environmental factors in understanding economic behavior, even in Germany, where air pollution is perceived as less problematic than in other parts of the world.

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