Air pollution,affect, and forecasting bias: Evidence from Chinese financial analysts |
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| Authors: | Rui Dong Raymond Fisman Yongxiang Wang Nianhang Xu |
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| Institution: | 1. Department of Finance, School of Business, Renmin University of China, Beijing 100872, PR China;2. Economics Department, Boston University, Room 304A, Boston, MA 02215, United States;3. Finance and Business Economics Department, Marshall School of Business, University of Southern California, HOH 716, Los Angeles, CA 90089, United States;4. Shanghai Advanced Institute of Finance, Shanghai Jiaotong University, Shanghai, China, 200030;5. Department of Finance, School of Business, Renmin University of China, Beijing 100872, PR China;1. Purdue University, Krannert School of Management, 403W. State Street, West Lafayette, IN 47907, United States;2. Asian Bureau of Finance and Economics Research, NUS Business School, BIZ 2 Storey 4, #04-05 1 Business Link 117592, Singapore;3. European Corporate Governance Institute, c/o the Royal Academies of Belgium, Palace of the Academies, Rue Ducale 1 Hertogsstraat, 1000 Brussels, Belgium;4. National Bureau of Economic Research, 1050 Massachusetts Ave, Cambridge MA 02138, United States;5. University of Alberta, Alberta School of Business, 4-20K Business Building, Edmonton, AB T6G 2R6, Canada;1. Stanford Graduate School of Business & NBER & CEPR, Knight Way, E264, Stanford, CA 94305;2. Federal Reserve Board, 1801 K Street NW, Washington, DC 20036, United States;1. Stanford Law School, 559 Nathan Abbott Way, Stanford, CA 94305, United States;2. Opportunity Insights, Harvard University, 1280 Massachusetts Ave, 2nd Floor, Cambridge, MA 02138, United States;1. University of Hong Kong, Pokfulam Road, Hong Kong, China;2. Renmin University of China, 59 Zhongguancun St, Beijing, Haidian District, China;3. Nanyang Technological University, 50 Nanyang Avenue, Singapore;1. University of Warwick, Warwick Business School, Finance Group, Coventry CV4 7AL, United Kingdom;2. Centre for Economic Policy Research (CEPR), London, United Kingdom;3. The Ohio State University, 820 Fisher Hall, 2100 Neil Avenue, Columbus, OH 43210, United States;4. University of Florida, Warrington College of Business, PO Box 117168, Gainesville, FL 32611–7168, United States |
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| Abstract: | We document a negative relation between air pollution during corporate site visits by investment analysts and subsequent earnings forecasts. After accounting for analyst, weather, and firm characteristics, an extreme worsening of air quality from “good/excellent” to “severely polluted” is associated with a more than 1 percentage point lower profit forecast, relative to realized profits. We explore heterogeneity in the pollution-forecast relation to understand better the underlying mechanism. Pollution only affects forecasts that are announced in the weeks immediately following a visit, indicating that mood likely plays a role, and the effect of pollution is less pronounced when analysts from different brokerages visit on the same date, suggesting a debiasing effect of multiple perspectives. Finally, there is suggestive evidence of adaptability to environmental circumstances – forecasts from analysts based in high pollution cities are relatively unaffected by site visit pollution. |
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