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

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.