Mind your breath: Air pollution and return manipulation

This study examines the causal effect of air pollution on mutual fund managers' portfolio pumping using a large sample of Chinese mutual funds. We find that higher air pollution significantly increases portfolio pumping. Mechanism test shows that pollution induces short-term opportunistic behavior through elevated portfolio turnover, which facilitates return manipulation. This effect is stronger when peer monitoring is weaker, managerial workload is higher, reputational pressure is lower, and stakeholder attention is limited. Causal identification relies on thermal inversions, the Beijing Olympic Games, and the Qinling-Huai River heating policy. Our findings highlight how environmental conditions shape managerial behavior and financial market outcomes.