The effects of environmental regulation on the stock market: the French experience

This paper investigates the impact of environmental regulation on the French stock market. Using the event study methodology and asset pricing models, we assess the impact of environmental regulation on the stock prices of environmentally-friendly businesses and polluters. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emission Trading System (EU-ETS) and less so to the regulation on water, soil and air (WSA). Surprisingly, while the chemicals, oil and gas industries show negative reactions, other polluters (such as construction and materials, and industrial transportation) exhibit positive abnormal returns.