Addressing Anticipation Effects in Finance

Tomislav Ladika, Elisa Pazaj and Zacharias Sautner
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Tomislav Ladika: University of Amsterdam
Elisa Pazaj: University of Amsterdam
Zacharias Sautner: University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

No 25-59, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: A wide range of empirical techniques cannot accurately estimate causal effects of policy events due to anticipation bias-agents making decisions based on beliefs about future policy outcomes. We show how researchers can refine estimates to account for these beliefs, by integrating reduced-form and structural estimation around observed outcomes of a single policy change. We illustrate the importance and implementation of the approach by applying it to the Paris Agreement, which is frequently used to understand how agents respond to a policy event that increased climate regulatory risk. We document that anticipation can bias both the magnitude and sign of the Paris Agreement's average treatment effect on firm outcomes (estimated from a standard model such as a difference-in-differences regression). We offer concrete guidance on how to account for the divergence between causal and estimated effects.

Keywords: Anticipation effects; reduced-form estimation; structural estimation; carbon tax; Climate finance (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025-06
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2559

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