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<p>This study proposes a novel classification of transition climate policies and constructs a set of climate policy risk indexes through textual analysis of U.S. climate-related policies between 2000 and 2022. Using annual data on clean and emission firms, the study employs an augmented panel GARCH-X to examine the impact of the policy risk factor on the mean and volatility of stock prices. The mean analysis reveals that transition policy risks are negatively priced in clean returns and positively priced in carbon-intensive returns. Shocks in transition climate policies are found to induce higher volatility in clean firms and promote stability in emission firms. Overall, the empirical analysis deduces that U.S. transition climate policies lack credibility and carry negative public climate sentiment. The findings and the policy recommendations of this study are noteworthy to regulators, policymakers, and other stakeholders.</p>

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Climate policy risks, market volatility, and credibility: evidence from the US transition climate policy and textual analysis

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月5日

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  • Hany Fahmy,
  • Nicholas Apergis

摘要

This study proposes a novel classification of transition climate policies and constructs a set of climate policy risk indexes through textual analysis of U.S. climate-related policies between 2000 and 2022. Using annual data on clean and emission firms, the study employs an augmented panel GARCH-X to examine the impact of the policy risk factor on the mean and volatility of stock prices. The mean analysis reveals that transition policy risks are negatively priced in clean returns and positively priced in carbon-intensive returns. Shocks in transition climate policies are found to induce higher volatility in clean firms and promote stability in emission firms. Overall, the empirical analysis deduces that U.S. transition climate policies lack credibility and carry negative public climate sentiment. The findings and the policy recommendations of this study are noteworthy to regulators, policymakers, and other stakeholders.