The Effects of the Paris Agreement on Stock Markets: Evidence from Clean Energy Stocks

Abstract

The threats presented by climate change have led to an increasing number of international environmental treaties. In this paper, the effects of the 2016 Paris Agreement on investment behaviors are specifically investigated. By applying the event study methodology, a market model based on S&P Broad Market Index is used to compute cumulative abnormal returns (CAR) of S&P Global Clean Energy Index. Overall, the treaty had limited effects on green companies: though a temporary positive effect was shown after the announcement, the implementation appeared to have a statistically negative impact. Furthermore, a linear regression test run between the market capitalization of 6 representative companies and their individual CARs suggest that the differential effect depends both on the scale and the locations of the companies. This work aims to evaluate the effectiveness of climate change treaties and sheds light on potential improvements for further research.