China's carbon emissions trading and stock returns

Abstract

Taking the Shenzhen pilot as an example, this paper uses a difference-in-differences (DID) method to quantitatively analyze the impact of carbon emissions’ environmental regulation on the stock returns of companies. The results show that establishing China's carbon emissions trading market has a positive effect on the excess returns of companies participating in carbon emission allowances trading. Besides, the carbon premium in stock returns has increased after Chinas carbon emissions trading market is established. And we also observe that the carbon premium has a steady upward trend after 2014. In addition, our study proves that the coefficient of carbon risk factor is significantly positive, which can be explained by the fact that companies participating in the carbon market have higher carbon exposures.