TRANSBOUNDARY HAZE AND STOCK MARKET RETURNS: EVIDENCE FROM SGX.

Abstract

Transboundary haze episodes are a frequent occurrence in Singapore. Motivated by prior literature suggesting a negative relationship between air pollution and stock market returns, this paper examines the effect of transboundary haze on Singapore’s stock market returns. The main empirical strategy exploits high and unanticipated variation in air pollution driven by regional forest fire activity as an instrumental variable to estimate the causal effect of PM2.5 concentrations on stock market returns. I find that there is no significant effect of PM2.5 on individual SGX-listed stocks as well as the Straits Times Index, and that Singapore policymakers have no cause for concern for the findings in prior literature. I propose that differences in findings can be attributed to the mitigative measures undertaken in response to transboundary haze.