Climate policy uncertainty and the price dynamics of green and brown energy stocks

Using the newly proposed textual-based climate policy uncertainty index of Gavriilidis (2021), we provide the first empirical evidence that climate policy uncertainty is a significant determinant of the performance of green energy stocks relative to brown energy stocks. The climate policy uncertainty effect is positive and driven by crisis periods. The findings highlight the predictive information of climate policy uncertainty for price dynamics of green and brown energy equity and underline its influence on the preference of investors for green energy stocks, which matters for asset pricing, style rotation strategies, and asset allocation.