The effect of air pollution on stock returns: evidence from Thailand and Indonesia

Abstract

The objective of this paper is to investigate the impact of air pollution on stock returns in Thailand and Indonesia from January 1, 2016, to June 30, 2021. Further effects of air pollution on stock returns during the seasonal pollution period, full moon period, new moon period, and high pollution period are also studied.

The result shows that a lagged day of air pollution proxy significantly reduces stock returns in Thailand. The significant negative effect of air pollution on stock returns is similar to that after controlling for the January effect. This is consistent with the finding of Li and Peng (2016). In addition, the negative effects of the lag air pollution agent on stock returns are stronger during the seasonal air pollution period, the full moon periods, and the high pollution days.

Moreover, the stock returns are higher during the new moon period in Indonesia. This is consistent with the finding of Dichev and Janes (2003). However, this paper does not find the significant effects of air pollution on stock returns in Indonesia.