The impact of air pollution on crude oil futures market

Abstract

This study investigates whether and how air pollution can affect the crude oil futures market. The results indicate that, although air pollution does not significantly affect oil returns, it does have a significant negative impact on volatility and liquidity in the crude oil futures market in the presence of pit trading. Furthermore, air pollution near the New York Mercantile Exchange (NYMEX) negatively affects both volatility and liquidity, whereas the effect magnitude diminishes as the distance from the NYMEX increases. In general, this study reveals that air pollution affects investors in the crude oil futures market directly through its physical or cognitive impact.