Does Air Pollution Cause Investor Bias

In recent years,addressing climate change and accelerating the achievement of carbon neutrality have become key tasks in China’s pursuit of green and lowcarbon development.In the process of promoting industrial upgrading and transformation and advancing low-carbon technology upgrading,financial guidance is crucial,and green bonds,as a new type of financial instrument,have gradually become the focus of market attention.On the one hand,a large number of studies in the literature show that air quality as an environmental factor affects individuals’ emotions and influences their behavioral decisions;on the other hand,studies based on behavioral finance also point out that investors’ emotions affect the subjective judgment of capital market participants,leading to irrational behavior.Based on the above logic,this paper takes 881 green bonds in China from 2016-2021 as an empirical sample,and then uses multiple regressions to try to answer two questions: first,whether green bond investors usually have environmental benefit preferences,and whether air pollution causes them to develop investor bias,which is eventually reflected in bond financing costs.Second,we investigate the moderating effects of whether green bonds are labeled or not and whether they are issued for the first time on the relationship between air pollution and investor bias at the green bond market level,and the moderating effects of issuer environmental awareness,investor sentiment,and underwriter reputation on the relationship between air pollution and investor bias at the market participant level.Compared with the existing literature,the possible innovations of this paper are mainly reflected in the following aspects: first,the existing literature on green bonds is mainly based on the perspective of issuers or the characteristics of green bonds themselves,and few studies have cut through the perspective of investors.In fact investors,as the demand side of green bonds,also act as one of the important factors influencing green bonds.In this paper,from the perspective of green bond investors,we find that air pollution leads to bias among green bond investors,providing a novel research perspective for green bond-related studies.Second,investor bias,as a subjective factor,is difficult to measure directly.This paper indirectly reflects this subjective factor in the effect of air pollution on the financing cost and green premium of green bonds,providing a feasible research idea for studying the related literature on investor bias.It also develops a heterogeneity analysis at the green bond market level and market participant level to explore the differences in the impact of air pollution on investor bias in different contexts.The findings of this paper show that(1)there is a significant positive relationship between the air pollution level of the issuer’s city and its bond financing cost,indicating that the financing cost of green bonds is affected by the air quality of the issuer’s location,reflecting the existence of investor bias from the perspective of financing cost.(2)The green premium reflects investors’ subjective estimation of the greenness of green bonds.The empirical study finds that there is a green premium in China’s green bond market,and the green premium is not significant when the issuer is in a region with high air pollution,indicating that investors’ estimation of the greenness of issuers in regions with high air pollution decreases,which indirectly reflects the existence of investors’ bias.(3)Regarding the possible moderating effects at the green bond market level and the market participant level,the heterogeneity analysis based on the green bond market level shows that labeled green bonds weaken the impact of air pollution on investors;for non-first-time green bond issuers,the impact of air pollution on investors is smaller.Heterogeneity analysis based on the market participant level shows that the impact of air pollution on investors is weaker when issuers are more environmentally conscious,overall market investor sentiment is higher,and green bond underwriters are more reputable.