The carbon reduction puzzle in stock market: Evidence from China’s “Dual-Carbon Target”

By analysing the ‘Dual-Carbon Target’ event in China as a quasi-experiment, we conduct an empirical research using event study method to reveal an interesting reversal phenomenon where the cumulative abnormal returns of carbon-intensive firms first fall, then grow, and eventually return to positive values. The research also reveals that the financial performance of carbon-intensive firms is not weakened by the ‘Dual-Carbon Target’, which could explain the reversal of stock returns of carbon-intensive firms. Compared with firms with less green innovation and private firms, the cumulative abnormal returns of firms with more green innovation and state-owned-firms experience a more pronounced decline in the short term. While carbon risk has been incorporated into the stock market, our results indicate that the low-carbon transition would be slow and iterative because of the current situation of high dependence on and rigid demand of fossil energy.