The relationship between air pollution, investor attention and stock prices: Evidence from new energy and polluting sectors

Abstract To meet its solemn commitments in the area of climate change and environmental protection, China is working to promote the development of green finance, hoping to direct more resources to green sectors such as the new energy industry. Data show that China is among the world leaders in the amount of green bond and green credit issuance, but green companies in China still do not receive enough support from the stock market. The purpose of this article is to identify the factors that affect the stock prices of new energy companies and to provide specific suggestions for improving stock performance, which will help new energy companies obtain finance in the stock market. This paper takes the listed new energy and polluting companies of China's A-share market as research objects and uses the Baidu Index as a proxy for investor attention. A mediating effect model is adopted to investigate the transmission mechanism among air pollution, investor attention and stock prices. The results indicate that air pollution will not directly increase the stock prices of new energy companies, but it will directly reduce the stock prices of polluting companies. Moreover, the mediator between air pollution and stock prices is investor attention because both new energy and polluting enterprises receive more attention on trading days with air pollution, and increased investor attention could translate into higher stock prices. However, the results of the subsample analysis show that when the stock market shows an upward trend or fluctuates frequently, air pollution causes investors to pay less attention to both types of companies, and air pollution does not significantly reduce the stock prices of polluting companies.