Research On The Dynamic Relationship Between Investors Attention To Climate Policy And The Stock Returns Of High Carbon Sectors

With the rapid development of industrialization,carbon dioxide emissions have increased dramatically,global warming and seawater acidification have been aggravated,and people gradually realize that climate change poses a great threat to global economic development.In order to reduce the impact of climate change,governments of various countries have enacted climate-related policies,expecting to slow down the process of climate change by levying carbon taxes,setting up carbon emission trading markets and strengthening carbon emission management.In recent years,China has promulgated a series of climate policies to mitigate the negative impacts of climate change,such as the White Paper on China’s Policies and Responses to Climate Change,the Comprehensive Work Plan for Energy Conservation and Emission Reduction in the 14 th Five-Year Plan,and the Opinions on Improving Institutional Mechanisms and Policy Measures for Green and Low-Carbon Energy Transition.At the 75 th session of the United Nations General Assembly,General Secretary Xi Jinping proposed the strategic goal of "carbon peaking and carbon neutral" to slow down the process of climate change and reduce the adverse impact of climate risks,and confirmed the importance of green emission reduction in China’s future development.In the process of low carbon transition,high carbon industries are of great concern to China’s regulatory authorities because of their high energy consumption and high emissions,so it is important to study the impact of climate policy on high carbon industries.As a barometer of economic development,stock market fluctuations can reflect the development of high-carbon industries in the process of low-carbon transition.Moreover,investors will constantly adjust the proportion of high-carbon assets in their investment strategies based on stock market fluctuations and climate policy content,which further triggers stock price fluctuations in high-carbon industries.Therefore,this paper studies the dynamic relationship between investors’ attention to climate policies and stock returns of high-carbon industries based on the perspective of investors’ attention,which is of great theoretical and practical significance for the smooth green transition of high-carbon industries in China.First,this paper theoretically clarifies the concepts of climate policy concern and stock returns of high carbon industries,and theoretically analyzes the mechanism of climate policy concern changes on stock returns of high carbon industries.Based on this,this paper empirically uses the TF-IDF method to analyze the text of climate policy,extracts key terms that can represent China’s climate policy,and then constructs the Climate Policy Concern Index(CPCI)combined with Baidu search index to characterize investors’ concern about climate policy.Then,the daily returns of five high-carbon industries,namely chemical,construction materials,iron and steel,extractive and non-ferrous metals,are selected according to the Shenwan’s primary industry classification and the carbon emission level of each industry.The dynamic correlation between CPCI and stock returns of high-carbon industries was analyzed using DCC-GARCH model.Finally,a principal component analysis is conducted to establish the composite returns of the five high-carbon industries.A timevarying Granger causality model is applied to investigate the time-varying Granger causality between CPCI and the composite returns of the high-carbon industries.By empirical study,we get the main conclusions as follows.First,investors’ attention to climate policy in China fluctuates cyclically from year to year,specifically climbing gradually in spring to reach a peak in summer,and slowly falling back in autumn to reach a trough in winter.And the overall rise in CPCI is not significant from 2015 to early 2019,and the level of concern gradually climbs during 2019-2021.Second,there is a dynamic correlation between CPCI and stock returns in high carbon industries,with the highest correlation between CPCI and extractive industries,followed by steel,construction materials,chemicals,and non-ferrous metals industries.Due to limited attention and herding effects,during major climate events and large fluctuations in crude oil prices,the correlation between CPCI and stock returns of high-carbon sectors changes significantly.Third,the Granger causality between CPCI and the composite return of high-carbon industries is time-varying.Changes in CPCI lead to stock price fluctuations in the high carbon sector during most of the sample period,and the relationship between the two is mainly unidirectional causality.However,after 2021,stock price fluctuations in the high-carbon sector also lead to CPCI changes,showing a two-way causality.Finally,based on our findings,we propose recommendations for a smooth transition of the high-carbon industry in the face of climate policy uncertainty from the perspectives of the high-carbon industry,national regulation and investors.