A Multivariate Mediation Analysis of PM2.5 Pollution and Stock Market Returns

Particulate matter 2.5 (PM2.5) is considered the most dangerous air-polluting particle, causing premature death and inducing severe mental and physical diseases worldwide. PM2.5 affects stock market returns directly via the fundamental channel and indirectly via the behavioral channel. This study examines the effects of Bangkok’s PM2.5 pollution on the return on the Market for Alternative Investment index portfolio using a multivariate mediation analysis. Attention, awareness, mood, sentiment, and stress, the mediating variables known to influence investors’ behavior, were considered jointly and explicitly in the model. This study is the first to introduce stress as a behavioral mediator. The roles and effects of the behavioral mediators were identified, measured, and compared. Using daily data from August 1, 2016, to November 30, 2023, this study found that the total, direct, and indirect effects were not significant. Stress was the only behavioral mediator that significantly and positively contributed to the indirect effects. This result remains unchanged for different estimation techniques, sample periods, representative stock returns, and PM2.5 occurrence times.