Modern Australian

Smoke haze hurts financial markets as well as the environment

  • Written by Naomi Soderstrom, Professor of Accounting and Deputy Head of Department, University of Melbourne

Sydney is currently blanketed by smoke haze from severe bushfires that have burned through New South Wales.

Air pollution levels on Thursday reached hazardous levels for the second time in a week. The NSW Rural Fire Service has warned that haze could be around for days.

On Thursday, several locations in Sydney had air quality index levels above 1,000. Anything over 200 is considered hazardous. Health authorities in Sydney have asked children to stay indoors.

You might be surprised to hear that while air pollution is bad for our health, it can also be bad for the economy.

In our forthcoming study in the Journal of Corporate Finance we show that air pollution impairs forecasts by financial analysts. This has implications for our financial system, which relies on accurate and timely information.

Read more: How does poor air quality from bushfire smoke affect our health?

Air pollution has been rising worldwide. Currently, four in every five city dwellers are exposed to dangerous levels of outdoor pollution. We know that as well as harming physical health, it hurts worker productivity.

We investigated whether it also harms the decision-making ability of financial analysts. This is important because their reports play a crucial role in the functioning of capital markets.

Smoke haze hurts financial markets as well as the environment Beijing smoke haze, November 2018. ROMAN PILIPEY/EPA

China is an ideal place to study it.

Over the past 20 years China has faced severe air pollution, including the infamous “airpocalypse” which struck Bejing in 2013, when average air quality levels remained hazardous for much of the year.

Recently China has made headway in reducing air pollution, but it remains a significant issue.

China is not alone – emerging and developing nations such as Brazil, India and Iran face similar problems – so our study is useful for understanding the economic effects of pollution elsewhere.

We examined the pollution levels in different cities on the days Chinese companies announced their earnings.

The more hazy the location, the more hazy the thinking

Most Chinese companies are followed by analysts in a number of Chinese cities. On earnings days, some are experiencing haze and others are not.

We were able to examine more than 59,000 publicly available forecasts from more than 2,000 analysts. We used published phone numbers to identify their locations.

We found those that were exposed to haze produced less bold forecasts, less timely forecasts, and less accurate forecasts

Analysts exposed to pollution were

  • 4.8% less likely to differentiate their forecasts from those of other analysts

  • 4% less likely to incorporate the new information from the announcements into their forecasts

  • 14% less likely to revise their forecasts at all within two days the announcements.

Hazy thinking matters

We are not sure why. We know that air pollution has negative effects on physical health and mood and we know that financial analysts are exposed to pollution not only when outside, but also at home and in the office, since filtering systems cannot completely clean the air.

Investors rely on analysts to provide information. Earnings announcements are key information events. Poor forecasts resulting from those events are an indirect negative effect of high levels of pollution.

Those indirect negative effects might be widespread, extending as far as manufacturing, schools and services industries. They add to the case for cleaning up air.

Read more: How rising temperatures affect our health

Authors: Naomi Soderstrom, Professor of Accounting and Deputy Head of Department, University of Melbourne

Read more http://theconversation.com/smoke-haze-hurts-financial-markets-as-well-as-the-environment-127511

NEWS

living with fire and facing our fears

The smouldering ruins of a child's bike lies amongst a property lost to bushfires in the Mid North Coast region of NSW last month.Darren Pateman/AAPIt is only mid-November but we...

why homicide rates in Australia are declining

Latest figures reveal homocides in Australia are at historic lows. AAP/James RossAccording to the latest figures, homicides in Australia are at historic lows and compare well against international trends.So what...

how designing hospitals for Indigenous people might benefit everyone

Sunshine Coast University Hospital uses evidence-based design to provide outside spaces with views that Indigenous people tell us they value.Architectus, Author providedWelcome to the next article in our Designing Hospitals...

Australia's slipping student scores will lead to greater income inequality

While no test is perfect but the Programme for International Student Assessment rankings are pretty useful for understanding the skills young people are being equipped with.www.shutterstock.comThe latest Programme for International...

We're using lasers and toaster-sized satellites to beam information faster through space

The electromagnetic spectrum we can access with current technologies is completely occupied. This means experts have to think of creative ways to meet our rocketing demands for data.NASA Johnson/Flickr, CC...

Angus Taylor's troubles go international, in brawl with Naomi Wolf

Morrison would rather live with a problem minister in a key post than give a scalp to Labor.Mick Tsikas/AAPScott Morrison said it with a straight face, and repetition for emphasis...

Early medical abortion is legal across Australia but rural women often don't have access to it

Australian women can have an early medical termination – which involves taking two oral medications – up to the ninth week of pregnancy.Jonatán Becerra/UnsplashAround one in six Australian women have had...

All hail apostrophes - the heavy lifters who 'point a sentence in the right direction'

Doing away with the apostrophe is not just the beginning of the end ... it's the end. www.shutterstock.comReports this week about the demise of the Apostrophe Protection Society may have...

It's the 10-year anniversary of our climate policy abyss. But don't blame the Greens

In 2009, a Bob Brown-led Greens party voted against an emissions trading scheme – but they can't be blamed for what came after.Mick Tsikas/AAPFederal Labor this week commemorated a dubious...

Morrison cuts a swathe through the public service, with five departmental heads gone

Scott Morrison has announced a dramatic overhaul of the federal public service, cutting the number of departments and creating several new mega ones, while removing five secretaries.The departments will...

Tick, tock... how stress speeds up your chromosomes' ageing clock

At a molecular level, stresses and strains can make your body clock break into a sprint.Lightspring/ShutterstockAgeing is an inevitability for all living organisms, and although we still don’t know exactly...

The government wants to privatise visa processing. Who will be held accountable when something goes wrong?

The Department of Home Affairs has begun taking steps to outsource its visa processing to private service providers. This move has sparked an important national debate on transparency, accountability and...

Popular articles from Modern Australian

6 Essential Features You Should Consider Before Buying a Ski WatchNew or Used Car: How to Select The Best For Your FamilyChoosing a home builder in SydneyWhy regular visits to the eye doctor are important6 Budget Tips for a Student Studying Abroad in Australia5 Ways to Style Your Winter Wardrobe Essentials Into Versatile Outfits5 Brisbane Summer Classes Your Teens Can AttendSummer Gardening Tips4 Tips to Prepare for a Home Meditation RetreatWhy You Should Hit the Gym This SpringSaving History One VHS Tape At A Time4 Vaccines Your Teens Should Be GettingStrength Training Tips To Make Your Workout EffectiveTop Fashion Secrets To Look Stylish No Matter The Occasion  How to save money on major home repairs