External Publications
2022.02
Date: 05/05/2022

European green policy announcements and sectoral stock returns


Authors:

Simone Borghesi (Florence School of Regulation, European University Institute); Marta Castellini (Department of Economics and Management, University of Brescia and Fondazione Eni Enrico Mattei); Nicola Comincioli (Department of Economics and Management, University of Brescia and Fondazione Eni Enrico Mattei); Michael Donadelli (Department of Economics and Management, University of Brescia); Ivan Gufler (Department of Economics and Finance, LUISS Guido Carli); Sergio Vergalli (Department of Economics and Management, University of Brescia and Fondazione Eni Enrico Mattei)

Published in: Energy Policy, Vol. 166, 113004

Abstract

To fulfill the Paris Agreement commitments and stimulated by an unprecedented amount of public resources put in place to recover from the COVID-induced recession, European governments have recently announced sizable green policy plans. In this paper, we examine the behavior of green and brown stocks around green policy-related announcements (GPAs) made by major European governments in 2020 via a standard event study analysis and the use of returns of stocks listed in the “STOXX 100 All Europe”. Our main empirical findings indicate the presence of positive cumulative abnormal returns (CARs) both in the green and brown sectors following GPAs. However, the estimated positive sentiment effect is stronger in the former sectors. A size effect in terms of the amount of resources announced to be allocated for a specific category of policy is also observed. We find that the observed positive sentiment is mainly driven by announcements on climate change mitigation-related policies, which account for 70% of the total allocated funds. At the sector level, positive and significant CARs due to GPAs are found in the (i) energy, (ii) financial and (iii) industrial sectors. At the country level, GPAs are found to drive a significant positive sentiment effect in the following European countries: Switzerland, Spain, UK, Ireland and Italy. Sector- and country-level analyses confirm the presence of larger benefits from GPAs among more sustainable portfolios.

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European green policy announcements and sectoral stock returns

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