The effect of climate policy uncertainty and induced risks on US aggregate and sectoral stock returns

Thomas C. Chiang

Research in International Business and Finance, 2025, vol. 76, issue C

Abstract: This study examines the change in climate policy uncertainty (∆CPU) on U.S. stock returns. Evidence shows that∆CPU and its lagged value present a positive effect in energy (and sometimes the utility) sector; however, there is a negative effect that exhibits in aggregate and other sectoral stock returns as investors discount the future income streams, costs of carbon and damages on the valuation of stocks. The ∆CPU on stock return and volatility further generate adverse effects on stock returns. Similarly, uncertainties from energy and environmental policy change, geopolitical risk, financial crises and COVID-19 negatively affect stock returns.

Keywords: Stock return; climate policy uncertainty; energy uncertainty; costs of carbon; equity market volatility (search for similar items in EconPapers)
JEL-codes: D81 E61 G12 G18 Q51 Q54 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925000534

DOI: 10.1016/j.ribaf.2025.102797

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