The Impact of Air Pollution on the Stock Market

Authors : Merve N. Erkut, Eylül Kabakçı Günay, Meltem Ince Yenilmez

Pages : 185-201

View : 88 | Download : 39

Publication Date : 2025-03-26

Article Type : Research Paper

Abstract :The purpose of this study is to examine the relationship between air pollution and the BIST stock market over 10 years between March 1, 2013 and July 7, 2023. This study draws attention to the gap in the literature on air pollution and stock market performance in Türkiye. Previous studies have examined the negative effects of fine particulate matter pollution on investor psychology. These studies emphasize that air pollution reduces investor optimism, which leads to more cautious investment decisions. Decreased optimism leads to a decline in the demand for risky assets, resulting in lower returns in stock markets. In this study, to examine the relationship between air pollution and stock market performance in Türkiye, Dickey-Fuller unit root tests were applied to test the stationarity of the variables and the suitability of the data for time series analysis was evaluated. The Air Quality Index (AQI) and dummy variables representing good/bad air quality days are used as independent variables in the model. The model also includes additional dummy variables to control for seasonal and calendar anomalies (such as the January effect and Monday effect) that may affect stock returns. As a result, this study analyzes the hypothesized negative relationship between air pollution and stock returns revealing that policies to improve air quality can provide both environmental and economic benefits. The findings emphasize that governments should increase incentives to improve air quality to mitigate the negative effects of air pollution on investor sentiment and enhance market stability
Keywords : Hava Kirliliği, Borsa, Yatırımcı Ruh Hali, ARIMA Modeli