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The return predictability of carbon emissions: Evidence from Hong Kong and Singapore

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Listed:
  • Cao, Jie
  • Zhan, Xintong
  • Zhang, Weiming
  • Zhang, Yaojia

Abstract

We examine the relationship between carbon emissions and future stock returns in Hong Kong and Singapore stock markets. Hong Kong-listed stocks with higher carbon emissions experience lower future stock returns. The pattern is driven by non-local stocks and is absent among local stocks. Carbon emissions do not predict future returns in Singapore, where most of listed stocks are local. Investors of non-local firms in Hong Kong underreact to the effect of carbon emissions on firm fundamentals and environmental incidents. Moreover, the return predictability is stronger among stocks with higher information asymmetry, fewer sophisticated investors, and higher arbitrage costs.

Suggested Citation

  • Cao, Jie & Zhan, Xintong & Zhang, Weiming & Zhang, Yaojia, 2023. "The return predictability of carbon emissions: Evidence from Hong Kong and Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002482
    DOI: 10.1016/j.pacfin.2023.102177
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    More about this item

    Keywords

    Return predictability; Corporate carbon emissions; Investor underreaction; Environmental incidents;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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