Pollution Chokes the Stock Market?

Disclaimer: This is a long research post. Thanks for your patience.

India is a developing country. It is among the fastest growing economies in the world under the able leadership of PM Narendra Modi. Like every growing economy, India has its own set of problems and pollution is one significant one. Look below to see India’s contribution to the top 10 most polluted cities in the world (source:Wikipedia)

Most Polluted Cities

Consequently, we Indians (at least in the most contributing metropolitan cities like Delhi, Mumbai etc.) are very much concerned about our well being and also how we can improve the environment.

So when HBR reported that there is a research team in the US that has found “Air pollution brings down the Stock Markets”, I could not resist to conduct a research exercise for  the same from the India (and world’s) beloved SENSEX with the air quality in Mumbai. It was an interesting exercise spanning over 3 days with some learning and some interesting results.

Before we get into details, little bit on the terms used and the methodology.

Important Terms:

Definition of Air Pollution: Air pollution in simple terms is the deteriorated condition of air in the location due to high density of sulphur dioxide, nitrogen oxide family and particulate matter. More on Air Pollution is here.

Identity of Sensex: Sensex is the index of market weighted average of 30 sound performing and specially identified companies from the listed public companies of India. It has per second, per nanosecond variation like any other index.


We followed a standard research methodology of collecting the open data sets, cleansing the data and then plotting.

  1. Sensex Data – We got this from Yahoo Finance. Thanks Merissa Mayer. Finally I used Yahoo after 7 years. While the data set at Yahoo is truly awesome, we used data only for the period where we had Air Quality Data.
  2. Air Quality Data for Mumbai- I got air quality data from the Maharashtra Pollution Control Board. The MPCB Data is available only for the following:
    1. SO2 – Sulphur Dioxide Presence in Air (measured in µg/m³). Threshold Value of SO2 is 80.00 µg/m³.
    2. NOx – Nitrogen Oxide compounds Presence in Air (measured in µg/m³). Threshold Value of NOx is 80.00 µg/m³.
    3. RSPM – Respirable Suspended Particulate Matter (measured in µg/m³) . Threshold Value of RSPM is 100.00 µg/m³.

Cleansing was required for the Data Sets collected from MPCB:

  1. Removal of Bad Day Light Input Data Sets – I cleansed all the data sets that had BDL (Bad Day Light) as input for any of the days. So in essence, if there was BDL entry for just SO2, while there were entries for NOx or RSPM, we removed the entire SO2 data set to have consistent data matches.
  2. Removal of Weekends Data – No data was retained for weekends as there is no trading done on these days in the exchange
  3. Date Massaging – We had to match date formats of MPCB with what we received from Yahoo Finance.

After all the massaging, the final data collected has following details:

  1. Start date of Data Set – 06/08/2004
  2. End Date of Data Set – 12/31/2012
  3. Total Number of Data Set Items – 1228
  4. Comparison Data Frequency – Daily
  5. Approx Number of Months compared – 41 months

Given the discrete nature of each data set, we have done plotting per dataset type i.e. SO2, NOx and RSPM. And then added a comparison with Sensex performance.


Below are all the plots for SO2, NOx, RSPM and Sensex Movement for the same day (i.e. Difference of starting Sensex level and closing Sensex level). Lets quickly review all of these one by one.

SO2 Content in Mumbai Air and the Sensex

The chart on the right represents the SO2 data for the period in descending order of magnitude SO2 Distributionof SO2 in Mumbai air for the period of our analysis. The acceptable limit of SO2 in air is 80 mug/m^3. From the data, we can find that SO2 crosses the 80 µg/m³ limit only twice –

  1. SO2 is 106 µg/m³ on Jan 27, 2010
  2. SO2 is 83 µg/m³ on Dec 23, 2009

Sensex Changes

On Jan 27, 2010, Sensex went down by 418 points while on December 23, 2009, it went up by 507 points. Clearly there is no direct correlation between SO2 presence in Mumbai Air and Sensex movement for the day.

The next chart will demonstrate the SO2 variation and the Sensex Movement for the entire period of the study. It is clear that the there is no direct correlation between SO2 presence in Mumbai Air and Sensex movement. Sensex has moved wildly up and down throughout the tenure of the study while SO2 presence has been largely within permissible limits of acceptance.


The chart on the left is the visual depiction of the Sensex movement for the total duration of review against the SO2 content in the Mumbai Air in the same period. The data is date wise distribution.

NOx Content in Mumbai Air and the Sensex

NOx content on the contrary had a different story to tell in terms of its general presence in the Mumbai atmosphere. The threshold value of NOx is again 80 µNOx in Mumbaig/m³. As we can see in the chart on right hand side, NOx is typically more than 80 µg/m³ in Mumbai Air. A total of 738 times out of 1229, NOx in Mumbai weather is more than 80 µg/m³. The average value of NOx in Mumbai air is 108 µg/m³ with a maximum value of 372 µg/m³ on January 14, 2008.

The chart on the left gives a parallel plot of NOx quantity in Mumbai Air versus the Sensex Difference. There doesnt seem to be any visible pattern either in data or in the visual below for the NOx and Sensex Difference.

NOx vs Sensex

RSPM Content in Mumbai Air and the Sensex

RSPM has threshold value of 100 µg/m³, which means that every time RSPM exceeds 100 it would be considered a situation of poor Air Quality due to the presence of RSPM in air.  RSPM

When I looked at the Mumbai Data for the period of our analysis, it is clear that RSPM has frequently exceeded the 100 µg/m³. In fact, if you look at the chart on the right, the frequency is almost regular. Consequently, there is no evidence of any unilateral relation between the RSPM data and the Sensex performance. Same is visible in the chart below where I could see that Sensex performance follows it own pattern while RSPM presence in Mumbai air follows its own.

RSPM vs Sensex


While the prompt for this study was the article in HBR essentially an interview about a study being conducted by few researchers in NYC and identifying patterns between NYSE performance and air quality, there was no data shared by them.

With the assumption that the data collected by MPCB at its various stations, would have the right historical data and that it would completely determine the pollution levels, the study was completed. Another assumption was the veracity of data chosen from Yahoo Finance for Sensex performance on any given day.

In my analysis, the teams in NYC have found correlation or causation of Stock market performance with air pollution, there is no clear evidence of any correlation or causation between Air Quality on a given day and Sensex performance. Being an emerging and one of the most vibrant stock exchanges in the world, SENSEX seems to have many more factors in play than just air pollution. A further study to see what could be those factors would help in next set of analysis.

Thanks for reading.

3 thoughts on “Pollution Chokes the Stock Market?”

  1. Interesting blog, thank you for sharing.

    A question on your methodology. Are you assuming the majority of those who interact with the SENSEX are exposed to the air quality standards reported in your study? Or more precisley, that the majority of the volume of trade is influenced by people exposed? This holds more or less true for Manhattan but it’s a tiny island in comparison to Mumbai…. you’d at least need air quality standards from the financial centre and even then you’d be relying on market activity being concentrated there – is this a given?


    1. First of all thank you for your comment. This comment somehow missed my attention to approve and so I never responded. And my many thanks for your great question. Just as Manhattan, the Dalal Street where SENSEX is traded over is in a mini island in the Fort Mumbai area. The weather conditions that had been studied are from the weather station closes to Dalal Street. Fort Mumbai is half a mile from the Nariman Point, end of the land for Mumbai.


  2. […] In the same year 2017, HBR published a study that claimed that as per research by few highly accomplished research scholars, pollution has an adverse effect on the stock markets. Living in Delhi, easily the world’s most polluted, and a stock markets enthusiast (I am still very positive in my portfolio despite the market meltdown), I decided to run a study of my own. Here is the complete blog. Its a long read but a comprehensive one. […]


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