The return predictability of carbon emissions: Evidence from Hong Kong and Singapore

Jie Cao, Xintong Zhan, Weiming Zhang and Yaojia Zhang

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: We examine the relationship between carbon emissions and future stock returns in Hong Kong and Singapore stock markets. Hong Kong-listed stocks with higher carbon emissions experience lower future stock returns. The pattern is driven by non-local stocks and is absent among local stocks. Carbon emissions do not predict future returns in Singapore, where most of listed stocks are local. Investors of non-local firms in Hong Kong underreact to the effect of carbon emissions on firm fundamentals and environmental incidents. Moreover, the return predictability is stronger among stocks with higher information asymmetry, fewer sophisticated investors, and higher arbitrage costs.

Keywords: Return predictability; Corporate carbon emissions; Investor underreaction; Environmental incidents (search for similar items in EconPapers)
JEL-codes: D62 G12 G15 G40 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002482

DOI: 10.1016/j.pacfin.2023.102177

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