Do Investors React Differently to GHG Emission in Stock Pricing Across Firms? Evidence from Commonwealth African Countries using a Novel Wavelet-Enhanced QQR Approach

This study examines the intricate and asymmetric relationship between corporate Greenhouse Gas Emission disclosure and stock returns and crash risks, focusing on listed firms in six Commonwealth African countries characterized by regulatory fragility, limited investor protection, and growing climate vulnerability. Motivated by recent debates on carbon disclosure and financial valuation, we extended the Quantile-on-Quantile Regression (QQR) method to a novel Wavelet-Enhanced Multivariate QQR (WE-MQQR) approach and applied it to capture the full distributional dynamics of the corporate greenhouse gas emission disclosure and stock returns across quantiles and frequency domains. Using a balanced panel dataset of firm-level observations from 2012 to 2023, we assess whether the financial market penalizes, or rewards firms based on their environmental transparency via carbon disclosure behavior. The findings reveal a highly nonlinear and quantile-dependent relationship: firms with low disclosure levels are disproportionately penalized in the lower quantiles of stock returns, especially under adverse market conditions, while firms with consistent and high carbon transparency show positive valuation effects in moderate-to-high return quantiles. For robustness, comparative analysis with baseline QQR models underscores the superiority of the WE-MQQR approach in capturing nonlinear, asymmetric, time-scale and country heterogeneity. Further analysis focusing on stock price crash risk also confirms the original findings, showing that firms with high emission exposure also face heightened crash risks, particularly in the upper quantiles of the crash risk distribution. These results provide robust empirical insights useful for climate finance policy, carbon risk pricing, and disclosure regulations in Africa's emerging capital markets.