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How poor air quality affects the stock market

Male infertility. Bad bones. Poor cardiovascular health. Beyond allergens, studies have shown a correlation between air quality and other maladies. But here’s a new twist: Poor air quality, particularly high levels of harmful particulate matter, might also be bad for economic health—or more specifically, it might be connected to stock market declines, according to a recent study.

The Research

Researchers from the University of Ottawa and Columbia University compared data from the S&P 500 index with hourly data from an air quality sensor at an Environmental Protection Agency monitoring station located close to Wall Street. They also included hourly weather data for air temperature, wind speed, rain and other factors.

The researchers also applied their methodology to the New York Stock Exchange and Nasdaq. The result: They consistently found a correlation between high levels of air pollution and lower stock performance.

The Findings

The study found that every time air quality decreased by one standard deviation—a common statistical metric used to measure variation among data points—the stock market performed 12% worse. That’s a substantial change, according to researchers. To verify their results, researchers reran the tests to control for rainfall. The research showing the correlation between air quality and market performance held up.

The Reasons

Researchers propose that the effect of bad air on our emotional state is one reason for the findings. Exposure to air pollution can create a more depressed mood and impact cognitive ability. Thus, poor air quality can make you both feel bad and slow down your thinking. In addition, according to the study, the double whammy of depressed mood and reduced cognitive ability is associated with a lower appetite for risk, while reduced risk tolerance is connected to worse stock market returns.

The findings, of course, have implications for our lives outside of Wall Street. For example, unhealthy particulate matter can also be found in the air we breathe at home, potentially depressing our mood and reducing our thinking ability. A smart air purifier with a HEPA filter like Airmega can reduce the amount of particulate matter in the air, potentially increasing your wellbeing and more.