The Impact of Air Quality and Investor Sentiment on Rate of Return on the Stock in China

For a long time, the impact of environmental factors on stock returns has always been a hot topic. An unfavorable environment for investors affects investors' emotions and causes them to have negative emotions, which leads to changes in investors' purchase preferences and thus affects stock returns. This paper uses the daily stock return data of the daily return rate of all outstanding A- shares on the Shanghai Stock Exchange in China in 2014, the local daily AQI data of 363 cities in 2014, and other control variable data to explore the effect of air quality on stock return through panel regression. The reasons for the effect of air quality on stock returns will be explained in this paper from the perspective of investor emotions. The results show that the worse the air quality is, the lower the stock return will be. This result still holds when controlling for city fixed effects and month fixed effects. Moreover, the interference of other control variables such as circulation market value and market risk premium on the results is excluded, indicating that investors' sentiment does affect stock returns.