The Effect of IPCC Reports and Regulatory Announcements on the Stock Market

This study explores U.S. public companies’ reactions to scientific announcements by the IPCC (Intergovernmental Panel on Climate Change) with respect to updated climate change knowledge and how it affects their stock valuations, given their carbon emission/environmental outlooks. Based on a sample of total daily returns collected for 10 industry indexes from the S&P 500 Index over the period 1990–2014, and using an event study approach, we analyze the connection between IPCC assessment report announcements and firms’ returns to evaluate panel data models. We found that various sectors, regardless of their carbon profiles, react abnormally to IPCC report announcements without remarkable long-run cumulative effects. The implications of these results are that there is no clear violation of the efficient markets hypothesis, yet short-term profits may be gained. Furthermore, the market still reacts to new scientific announcements, even though 24 years have passed since the first IPCC report. In addition, there is a negative relationship for low and medium carbon-intensive industries, especially in the short term.