Abstract
We explore how the moods of open-end fund managers affect stock returns and trading activities. We construct a firm-level measure of fund-manager mood induced by local air pollution. We find that a depressed fund-manager mood significantly decreases the contemporaneous stock returns and liquidity. These results hold in a series of robustness checks. Further, we find that the effects of fund-manager mood on stock returns are more pronounced for firms that are difficult to arbitrage. This study shows another potential channel through which air pollution might impact financial markets.
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