Financial forecasting under pollution stress: Analyst bias in Indian markets

This study investigates the impact of air pollution on the accuracy of financial analysts’ earnings forecasts following company site visits in India. Using publicly disclosed site visit reports from National Stock Exchange (NSE)-listed firms and corresponding analyst forecasts, it examines predictions issued within 15- and 30-day post-visit. By integrating earnings forecast data from CMIE Prowess and daily air quality indices (AQI) from the Central Pollution Control Board (CPCB), the study assesses how environmental conditions influence forecast reliability. Controlling for firm-level attributes and analyst characteristics, it measures forecast optimism as the deviation between projected and actual earnings per share (EPS), normalized by stock price. Findings reveal that severe air pollution biases forecast downward, especially in the short term. However, this effect weakens when multiple analysts participate, indicating collective assessments mitigate pollution-induced distortions. Analysts familiar with high-pollution environments exhibit greater resilience, underscoring the environmental determinants of financial decision-making in emerging markets.