The effects of announcement of green policies on equity portfolios: Evidence from the United Kingdom
Abstract
Purpose
This paper aims to investigate the impact of 75 announcements of environmental policies on British equities over the period 2003 to 2012. In particular, the research has the following specific objectives: finding out whether there is wealth creation/destruction for investors as a result of the announcements of green policies and identifying changes in risk structure following the introduction of green policies.
Design/methodology/approach
Using event study methodology and non-parametric tests, the authors attempt to find out whether announcements of environmental/sustainability policies are value constructive or destructive for equity investors. The CAPM is fitted with interaction variables to measure the change in systematic risk following announcements.
Findings
The results show that the UK market is particularly sensitive to domestic, international and nuclear announcements. Cumulative abnormal returns in the range of 30-40 per cent were recorded in certain sectors. Consistent with the emerging literature, the authors observe that environmental policies induce changes in the systematic risk of businesses, both in the short run and the long run.
Originality/value
To the best of authors’ knowledge, the literature does not provide any answer as to how the risk and return of British equity portfolios change following the announcement of green policies in the aftermath of the Kyoto Protocol on climate change. Furthermore, the literature does not differentiate among various categories of announcements (domestic, international and nuclear). Therefore, this paper bridges the gap in the literature on these two grounds.
Keywords
Acknowledgements
This paper was presented at the RMIT 2014 Accounting for Sustainability Conference. The authors wish to thank two anonymous referees, Sophia Ji, Brian Andrew, Gillian Vesty, Steven Dellaportas, Garry Carnegie and the remaining participants for their comments and support.
Citation
Ramiah, V., Morris, T., Moosa, I., Gangemi, M. and Puican, L. (2016), "The effects of announcement of green policies on equity portfolios: Evidence from the United Kingdom", Managerial Auditing Journal, Vol. 31 No. 2, pp. 138-155. https://doi.org/10.1108/MAJ-08-2014-1065
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited