Profiting from Regulation: An Event Study of the EUCarbon Market

We investigate the eect of cap-and-trade regulation of CO2 on rm prots byperforming an event study of a CO2 price crash in the EU market. We examinereturns for 90 stocks from carbon intensive industries and 600 stocks in the broadEUROSTOXX index. Firms in carbon intensive, or electricity intensive industries,but not involved in international trade were most hurt by the event. This impliesinvestors were focused on product price impacts, rather than compliance costs. Wend evidence that rms net allowance positions also strongly inuenced the shareprice response to the decline in allowance prices.[...]