Modeling the Relationship Between Environmental Regulations and Stock Market Growth in China: Evidence Beyond Symmetry

Assad Ullah (), Xinshun Zhao (), Unbreen Qayyum (), Muhammad Abdul Kamal () and Aamir Aijaz Sayed ()
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Assad Ullah: Hainan Normal University
Xinshun Zhao: Henan University
Unbreen Qayyum: Pakistan Institute of Development Economics
Muhammad Abdul Kamal: Abdul Wali Khan University
Aamir Aijaz Sayed: Shri Ramswaroop Memorial University

Journal of the Knowledge Economy, 2024, vol. 15, issue 1, No 100, 2460-2481

Abstract: Abstract This research article sheds light on the dynamic relationship between environmental regulations changes and stock market development in China. Utilizing the nonlinear autoregressive distributed lag (NARDL) and the nonlinear causality approaches, we observed a nonlinear causal relationship between environmental regulations changes and stock development in China. The positive (negative) shocks of environmental regulations have a negative (negative) relationship with stock market development both in the short and long run. Nonetheless, the negative shocks of environmental regulations carry more weight vis-à-vis the positive shocks. These empirical outcomes imply that the “pollution halo” phenomenon exhibits dominance over the “pollution haven,” which entails the positive attitude of companies towards environmental regulations measures taken by the Chinese government. The nonparametric causality approach affirms unidirectional nonlinear causal association between environmental regulations and stock market development. These estimations are robust to alternative econometric specifications. Our findings provide useful insights for policymakers to bolster environmental regulations measures in order to propel the size of the stock market and realize China’s sustainable development goals.

Keywords: Environmental regulations; Stock market development; Asymmetric cointegration; Nonparametric causality; China (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01259-z

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