Market Reactions to the European Carbon Border Adjustment Mechanism: Evidence from Carbon-Intensive Industries in China

The European Union introduces a cross-border carbon policy, the Carbon Border Adjustment Mechanism (CBAM), to prevent carbon leakage. This study aims to investigate the short-term market reaction of Chinese listed firms in industries covered by the EU CBAM to its official enactment on May 17, 2023. This research examines whether investors perceived the CBAM as a risk or an opportunity. Using an event study methodology, we analyze the cumulative abnormal returns (CAR) for a sample of affected firms over a three-day event window surrounding the enactment date. The results reveal a significant positive market reaction, with a cumulative average abnormal return of 0.60%, primarily driven by a strong 0.91% positive return on the enactment day itself. This finding suggests that investors, on aggregate, interpreted the CBAM not as a punitive burden but as a regulatory shock that will enhance the short-term valuation of Chinese exporters.