Climate policy uncertainty and stock market pricing efficiency: Evidence from China

Climate risk, which is a critical external factor affecting the pricing of financial assets, has significant financial consequences that are gaining recognition among investors. However, previous studies have not fully explored the specific impact of climate risk, especially climate policy uncertainty, on stock market pricing efficiency. This paper employs data from Chinese A-share listed companies between 2009 and 2022 to examine the causal relationship between climate policy uncertainty and stock market pricing efficiency. The results reveal that an increase in climate policy uncertainty significantly exacerbates stock price delays, thereby diminishing pricing efficiency in the market. These findings hold true even after potential endogeneity issues are addressed and various robustness tests are conducted. The analysis suggests that greater climate policy uncertainty increases public awareness of the underappreciation of climate risk, leading to delays in stock price adjustments and a reduction in the pricing efficiency of listed companies. This study also identifies the mechanisms through which climate policy uncertainty impacts pricing efficiency, highlighting the roles of information asymmetry and corporate governance. Further heterogeneity analysis demonstrates that the detrimental effects of climate policy uncertainty on pricing efficiency are more substantial in firms with lower institutional investor ownership, nonstate-owned enterprises , and those with low carbon intensity. This research improves our understanding of the implications of climate policy uncertainty for financial markets and provides empirical insights for companies seeking to increase stock market pricing efficiency in the face of climate change risk.