Do carbon policy shocks move stocks? evidence from China’s carbon market

As carbon policies expand under net zero goals, policy news in carbon markets can send fast signals for equity prices. Using daily data for more than 1,600 listed firms from July 2021 to December 2025, we build carbon policy shocks from carbon price moves on 12 national ETS release days and estimate their link to stock returns. Carbon price changes on release days have a much stronger link to stock returns than changes on other days. Channel tests suggest the response is tied to shifts in short-run risk conditions and changes in trading conditions around release days. The effect is stronger when the carbon market is more mature and more active, and it differs by ETS coverage status, policy type and firm carbon exposure. The findings show how transition risk is priced in China and inform ETS communication and market depth.