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The effect of climate policy uncertainty and induced risks on US aggregate and sectoral stock returns

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  • Chiang, Thomas C.

Abstract

This study examines the change in climate policy uncertainty (∆CPU) on U.S. stock returns. Evidence shows that∆CPU and its lagged value present a positive effect in energy (and sometimes the utility) sector; however, there is a negative effect that exhibits in aggregate and other sectoral stock returns as investors discount the future income streams, costs of carbon and damages on the valuation of stocks. The ∆CPU on stock return and volatility further generate adverse effects on stock returns. Similarly, uncertainties from energy and environmental policy change, geopolitical risk, financial crises and COVID-19 negatively affect stock returns.

Suggested Citation

  • Chiang, Thomas C., 2025. "The effect of climate policy uncertainty and induced risks on US aggregate and sectoral stock returns," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925000534
    DOI: 10.1016/j.ribaf.2025.102797
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    Keywords

    Stock return; climate policy uncertainty; energy uncertainty; costs of carbon; equity market volatility;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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