Does environmental pollution influence household asset allocation? Evidence from China
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RESEARCH ARTICLE
Does environmental pollution influence household asset allocation? Evidence from China Min Zhang 1 & Yulin Liu 2 Received: 10 February 2020 / Accepted: 16 November 2020 # Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract This paper establishes a causal relation between households’ decision of asset allocation and environmental pollution based on urban PM2.5 concentration data and a nationally representative survey in China. We find a significantly negative effect of environmental pollution on households’ demand for housing assets but an inverted U-shaped effect on the demand for risky assets. The effects are remarkably robust to correcting the endogenous issue and a battery of robustness checks. Social interaction can partly explain such an effect of pollution. Furthermore, we also find that because households with lower economic status are at greater risk of exposure to environmental pollution and lack of economic capabilities, their holdings of financial assets decrease more than that of the households with higher economic status when faced with pollution; however, their holdings of low liquid assets declining less. Keywords Environmental pollution . Asset allocation . Social interaction . Economic status JEL codes D14 . G11 . Q53
Introduction Environmental pollution, a threat to human survival and development, has incited worldwide concern. In September 2016, the World Health Organization (WHO) released “Ambient Air Pollution: A Global Assessment of Exposure and Burden of Disease,” which reported that 92% of the world’s population was living in an area where air quality exceeds WHO limits. In 2013, almost half of China was shrouded in smog and haze. According to the 2017 China Eco-Environment Bulletin, only 99 of the 338 prefecturelevel and above cities have achieved environmental air quality standards, and the over-standard rate reached 70.7%. The Responsible Editor: Philippe Garrigues * Yulin Liu [email protected] Min Zhang [email protected] 1
School of Economics and Business Administration, Campus B, Chongqing University, Shapingba District, Chongqing, China
2
School of Public Affairs, Campus A, Chongqing University, Shapingba District, Chongqing, China
2018 Global Environmental Performance Index, released by Yale University, Columbia University and the World Economic Forum, shows that China ranks 120th among 180 countries and regions. Severe environmental pollution not only harms body functioning, but also negatively affects people’s mental health (Levinson 2012; Zhang et al. 2017). For the sake of physical and mental health, more and more families purchase medical insurance, build up precautionary savings, and even sell their house and move out of heavily polluted cities. Environmental pollution has become an important factor affecting household asset allocation. According to precautionary saving theory and behavioral finance theory, investment behavior is affected by health and mood. However, environmental quality, as an important factor of human health, is often n
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