Cover IMF Working Papers
Buy Book in Print
Carbon Policy and Stock Returns: Signals from Financial Markets
Author:
Martina Hengge https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Martina Hengge in
Current site
Google Scholar Close
,
Ugo Panizza https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Ugo Panizza in
Current site
Google Scholar Close
, and
Richard Varghese https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Richard Varghese in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2023: Issue 013
Language:
English
Publication Date:
27 Jan 2023
DOI:
https://doi.org/10.5089/9798400229329.001
ISBN:
9798400229329
ISSN:
1018-5941
Pages:
34
Keywords:
Carbon Emissions; Carbon Prices: Climate Change; Transition Risk; Stock Returns; carbon Policy surprise; investors price; carbon intensity; climate mitigation policy; EU ETS; Greenhouse gas emissions; Stocks; Asset prices; Climate change; Europe; Global; Emissions trading; stock return; carbon policy; EU Emissions Trading System; Climate policy
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (2.3 MB) Download Epub
Understanding the impact of climate mitigation policies is key to designing effective carbon pricing tools. We use institutional features of the EU Emissions Trading System (ETS) and high-frequency data on more than 2,000 publicly listed European firms over 2011-21 to study the impact of carbon policies on stock returns. After extracting the surprise component of regulatory actions, we show that events resulting in higher carbon prices lead to negative abnormal returns which increase with a firm's carbon intensity. This negative relationship is even stronger for firms in sectors which do not participate in the EU ETS suggesting that investors price in transition risk stemming from the shift towards a low-carbon economy. We conclude that policies which increase carbon prices are effective in raising the cost of capital for emission-intensive firms.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund