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The carbon reduction puzzle in stock market: Evidence from China’s “Dual-Carbon Target”

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  • Mingyuan You
  • Peizhi Liu

Abstract

By analysing the ‘Dual-Carbon Target’ event in China as a quasi-experiment, we conduct an empirical research using event study method to reveal an interesting reversal phenomenon where the cumulative abnormal returns of carbon-intensive firms first fall, then grow, and eventually return to positive values. The research also reveals that the financial performance of carbon-intensive firms is not weakened by the ‘Dual-Carbon Target’, which could explain the reversal of stock returns of carbon-intensive firms. Compared with firms with less green innovation and private firms, the cumulative abnormal returns of firms with more green innovation and state-owned-firms experience a more pronounced decline in the short term. While carbon risk has been incorporated into the stock market, our results indicate that the low-carbon transition would be slow and iterative because of the current situation of high dependence on and rigid demand of fossil energy.

Suggested Citation

  • Mingyuan You & Peizhi Liu, 2024. "The carbon reduction puzzle in stock market: Evidence from China’s “Dual-Carbon Target”," Applied Economics Letters, Taylor & Francis Journals, vol. 31(19), pages 2034-2041, November.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:19:p:2034-2041
    DOI: 10.1080/13504851.2023.2209354
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