Environmental regulation, the Obama effect and the stock market: some empirical results

Following the signing of the Kyoto protocol in 2005, a new wave of green policies emerged with the intention of protecting our planet. This study explores the effects these policies have on capital markets. In particular, we assess how the risk and return of US industrial portfolios react to the announcement of green policies. Event study methodology and asset pricing models are used to that end. We document negative abnormal returns and increase in systematic risk for the biggest polluters whereas environmentally friendly businesses are affected to a lesser degree. An apparent Obama effect is observed, resulting from the 2008 outcome of the US presidential election.