Author(s)

Bo Xiao ¹, Yimeng Ren ²

Affiliation(s)

¹ School of Business, Ningbo University, Ningbo, 315211, China
² School of Internet of Things Engineering, Jiangnan University, Wuxi, 214122, China

Corresponding Author

Bo Xiao

ABSTRACT

Carbon trading is a key tool in the financial sector's shift towards a sustainable model in response to climate change, which is a market-based approach to regulating greenhouse gas emissions. This paper examines the impact of carbon prices on stock returns. The study utilizes an improved three-factor model and data from 40 stocks in China's high-carbon industries, as well as a control group of 80 stocks from other industries. The empirical findings reveals that high-emitting companies are negatively affected by carbon trading prices, leading to lower stock returns. This suggests that the impact of carbon trading prices on costs and investor confidence outweighs the carbon risk premium. However, the results differ for industries in the control group, indicating that the conclusions may not apply universally.

KEYWORDS

Carbon trading, green finance, stock returns, Fama-French three-factor model, high-carbon industries

CITE THIS PAPER

Bo Xiao, Yimeng Ren, Impact of Carbon Prices on Stock Returns: Evidence from China's High-Carbon Industries. Financial Engineering and Risk Management (2023) Vol. 6: 9-16. DOI: http://dx.doi.org/10.23977/ferm.2023.061102.

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