Fresh Air Eases Work—the Effect of Air Quality on Individual Investor Activity

Abstract

This paper shows that contemporaneous and lagged air pollution significantly negatively affects the likelihood of German individual investors logging in and trading in their brokerage accounts, using intra-day data and controlling for investor-, weather-, traffic-, and market-specific factors. A one standard deviation increase in air pollution leads to a 1.3% reduction in the probability of logging in, which is larger than the response to a one standard deviation increase in sunshine. We argue that changes in air pollution affect productivity in cognitively demanding tasks, such as trading. Our results are robust to macroeconomic productivity shocks, non-linearities, or measurement errors.