Bidding on Brown while Asking for Green: An Event Study on the Impact of Carbon Emissions on Stock Returns Following the 2016 U.S. Presidential Election

Sammanfattning: The election of Donald J. Trump as the U.S. president in 2016 shifted people's expectations drastically. Hillary Clinton was expected to win, according to betting polls, with asset prices mainly reflecting such an outcome. In a world where stocks of firms with higher levels of carbon dioxide emissions are more exposed to the risks associated with climate regulations, the victory of climate-sceptic Trump would be beneficial to firms emitting higher levels of carbon emissions. This paper investigates the impact of carbon emissions on U.S. stock returns following the election with the aim to understand how investors price risk associated with expected changes in climate regulations. We conclude that, when including relevant controls for firm characteristics, investors rewarded firms emitting higher levels of carbon emissions following the election.