How Does the Stock Market React to the Carbon Policy? The Chinese Experience During 2014–2022

Sarula Bai and Cheol‐Won Yang

Asia and the Pacific Policy Studies, 2025, vol. 12, issue 3

Abstract: As countries around the world move towards carbon neutrality, firms are facing new challenges of policy uncertainty. China is an interesting place to explore this, as it is the largest carbon emitter and is taking strong steps towards carbon neutrality after the Paris Agreement. We investigate the impact of 28 Chinese carbon neutral policies on the stock return and systematic risk during 2014–2022. Event study methodology and modified CAPM (capital asset pricing model) with dummy variable for announcement date are employed. The results show that the electricity & heating, finance, and health sector experiences negative effects, while the mining industry has positive returns. Industries with mixed impacts initially experience negative impacts in the early stages, but turn positive later. Moreover, there is a noticeable trend of decreasing systematic risk in high‐energy‐consuming industries. This suggests that consistent policy enforcement can reduce the risks stemming from policy uncertainty, which in turn can benefit both firms and investors.

Date: 2025
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