The Impact of Air Pollution on the Stock Market

Merve N. Erkut; Eylül Kabakçı Günay; Meltem Ince Yenilmez

Article Details

The Impact of Air Pollution on the Stock Market

Authors:

Merve N. Erkut | Eylül Kabakçı Günay | Meltem Ince Yenilmez

Publisher:

Hacettepe University

Main Topics:

Çevre Ekonomisi | Sağlık Ekonomisi

Journal:

Hacettepe Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi Vol.43 Issue 1, pp.185-201

Document Type:

Article

Publication Date:

3/2025

Document Language:

English

Document ID (Org No.):

2001343523

pISSN:

1301-8752

Keywords:

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 goodbad 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.

 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 goodbad 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.

 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 goodbad 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.

 Bu araştırmanın amacı, 1 Mart 2013 ile 7 Temmuz 2023 tarihleri arasındaki 10 yıllık dönemde BIST hisse senedi piyasası ile hava kirliliği arasındaki ilişkiyi incelemektir. Bu çalışma, Türkiye özelinde hava kirliliği ve borsa performansına ilişkin literatürde bulunan boşluğa dikkat çekmektedir. Önceki çalışmalar, ince partikül madde kirliliğinin yatırımcı psikolojisi üzerindeki olumsuz etkilerini incelemiştir. Bu çalışmalar, hava kirliliğinin yatırımcı iyimserliğini azalttığını ve buna istinaden yatırım kararlarının daha temkinli hale geldiğini vurgulamaktadır. Azalan iyimserlik, riskli varlıkların talebinde düşüşe yol açarak hisse senedi piyasalarında getirilerin azalmasına neden olmaktadır. Bu çalışmada, Türkiyede hava kirliliği ve hisse senedi piyasası performansı arasındaki ilişkiyi incelemek amacıyla değişkenlerin durağanlığını test etmek için Dickey-Fuller birim kök testleri uygulanmış ve verilerin zaman serisi analizi için uygunluğu değerlendirilmiştir. Modelde bağımsız değişken olarak Hava Kalitesi İndeksi AQI ve iyikötü hava kalitesi günlerini temsil eden kukla değişkenler kullanılmıştır. Model, aynı zamanda hisse senedi getirilerini etkileyebilecek mevsimsel ve takvimsel anomalileri Ocak ayı etkisi ve Pazartesi etkisi gibi kontrol etmek için ek kukla değişkenleri de ekleyerek etkilerini gözlemlemektedir. Sonuç olarak, bu çalışma, hava kirliliği ile hisse senedi getirileri arasındaki varsayılan negatif ilişkiyi analiz ederken, hava kalitesinin iyileştirilmesine yönelik politikaların hem çevresel hem de ekonomik faydalar sağlayabileceğini ortaya koymaktadır. Çalışmanın bulguları, hava kirliliğinin yatırımcı duyarlılığı üzerindeki olumsuz etkilerini hafifletmek ve piyasa istikrarını artırmak amacıyla, hükümetlerin hava kalitesini artırmaya yönelik teşvikleri artırması gerektiğini vurgulamaktadır.

Article Details

The Impact of Air Pollution on the Stock Market

Authors:

Merve N. Erkut | Eylül Kabakçı Günay | Meltem Ince Yenilmez

Publisher:

Hacettepe University

Main Topics:

Çevre Ekonomisi | Sağlık Ekonomisi

Journal:

Hacettepe Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi Vol.43 Issue 1, pp.185-201

Document Type:

Article

Publication Date:

3/2025

Document Language:

English

Document ID (Org No.):

2001343523

pISSN:

1301-8752

Air Pollution

Stock Market

Investor Mood

ARIMA ModelHava Kirliliği

Borsa

Yatırımcı Ruh Hali

ARIMA Modeli

Issues

Article Details

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

Publisher: Hacettepe University

Main Topics: Çevre Ekonomisi | Sağlık Ekonomisi

Journal: Hacettepe Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi Vol.43 Issue 1, pp.185-201

Document Type: Article

Publication Date: 3/2025

Document Language: English

Document ID (Org No.): 2001343523

pISSN: 1301-8752

Issues

Authors:

Merve N. Erkut | Eylül Kabakçı Günay | Meltem Ince Yenilmez

Publisher:

Hacettepe University

Main Topics:

Çevre Ekonomisi | Sağlık Ekonomisi

Journal:

Hacettepe Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi Vol.43 Issue 1, pp.185-201

Document Type:

Article

Publication Date:

3/2025

Document Language:

English

Document ID (Org No.):

2001343523

pISSN:

1301-8752