Are financial markets aligned with the Paris Agreement? An empirical study on the price change in the energy sector after the adoption of the Paris Agreement and the U.S. withdrawal

Abstract

This paper seeks to answer if a financial effect altered the energy sector after the announcements of adopting the Paris Agreement on the 12th of December 2015; and the United States’ withdrawal from the Paris Agreement on the 1st of June 2017. It is generally accepted by similar research, that the adoption of the Paris Agreement will show a positive effect on renewable energy stocks, and a negative reaction on fossil fuel energy stocks. For the withdrawal, it is expected the opposite effect. However, there is a lack of academic research on the effect on fossil fuel energy stocks after the announcement of the U.S. withdrawal. A short-window event study is considered the optimal methodology to observe new information reflected in financial markets, but an event study is also exposed to other price-driving factors. Our findings indicate that financial reactions on energy stocks do not align with new information on climate committing action related to the Paris Agreement.