The Impact of Air Pollution Levels on Chinese Green Bond Market during COVID-19 : A Green Preference Perspective

Environmental change is an important factor influencing green investment, and it affects green assets through green preference. However, this influence mechanism has not been studied on green bonds. This study adopts the threshold effect model to analyze the impact of air pollution levels on the green bond market. Theoretically, environmental perception will trigger green investment through green preference, whereas the role of green preference is affected by air pollution level. Namely, there is a threshold effect of air pollution. Only when the level of air pollution exceeds a certain threshold can green preference change investor behavior. The empirical results confirm this mechanism: at low air pollution levels, weak physical stimuli are not sufficient to induce strong environmental perceptions, resulting in insignificant role of green preference; when air pollution exceeds the threshold, the effect of air pollution becomes significantly positive due to enhanced environmental perceptions. In addition, major crisis events (e.g. COVID-19) may weaken the role of green preferences by distracting investors, leading to insignificant impact of air pollution on green bonds after the epidemic. This paper's findings mean that enterprises can use green preference to achieve transformation; while the government may also take different measures to promote green finance