Does investor attitude toward carbon neutrality affect stock returns in China?

Abstract

As climate risk becomes a severe problem, carbon neutrality is attracting the attention of both government and residents, and whether attitude toward carbon neutrality affects the stock market needs to be investigated. Investor attitude was measured by the search frequency and news attention from the Baidu Index. Using a comprehensive daily dataset of Chinese listed firms, the evidence showed that stock prices positively respond to investor attitude. Due to higher exposure on social media, stock turnover rates significantly increased, but institutional ownership significantly decreased. However, stock liquidity hardly improved, suggesting that the firms' fundamental performance was weakly driven by more attention. Moreover, stock returns rose in response to positive news and decreased in response to negative news. Besides, the attention had a larger effect on stocks with higher trading value. The results were robust when using an instrumental variable and an alternative measure. This paper provided suggestions for listed companies and investors. Investor attitudes would increase the stock returns, but the main role was to hype hot concepts. Attention was a double-edged sword, and firms needed to improve their competitive strength when positive attention was high.