THE EFFECT OF CARBON MARKET POLICY UNCERTAINTY ON THE SHARE PRICES OF COVERED FIRMS: EVIDENCE FROM CHINA

Wei Liu, Xiaoqi Huang, Yining Wang () and Xiujie Tan
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Wei Liu: Economics and Management School, Wuhan University, Wuhan, P. R. China‡Climate Change and Energy Economics Study Center, Wuhan University, Wuhan, P. R. China
Xiaoqi Huang: ��Economics School, Zhongnan University of Economics and Law, Wuhan, P. R. China‡Climate Change and Energy Economics Study Center, Wuhan University, Wuhan, P. R. China
Yining Wang: Economics and Management School, Wuhan University, Wuhan, P. R. China
Xiujie Tan: ��Climate Change and Energy Economics Study Center, Wuhan University, Wuhan, P. R. China§Institute for International Studies, CICTSMR, Wuhan University, Wuhan, P. R. China

The Singapore Economic Review (SER), 2024, vol. 69, issue 08, 2633-2658

Abstract: With the development of the carbon market, extensive attention has been paid to the relationship between the carbon market and the stock market. In this paper, we employ the event study method and fixed-effects model to investigate the effect of carbon market policy adjustments (CMPAs) on the share prices of covered firms. The main findings are as follows: First, CMPA can trigger abnormal fluctuations in the share prices of covered firms, which is reinforced by a series of sensitivity tests. Second, heterogeneity checks suggest that this kind of positive effect is more significant for non-state-owned firms, firms on China’s Main Board (MB) and firms in active carbon pilots. Besides, there are two potential influence channels between carbon market policy and share price of covered firms, including affecting carbon prices (CPs) and releasing important signals. Our findings indicate that there is a joint effect between the carbon market and the stock market. Therefore, policymakers should fully consider the impact of CMPAs on covered firms’ share prices when formulating new carbon market policies.

Keywords: Carbon market policy adjustments; share prices; carbon prices; signals; covered firms (search for similar items in EconPapers)
JEL-codes: G1 Q5 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590823500418

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