Do Markets react to Government and Stock Exchange-Disclosed ESG regulations and policies through Banks and Public Firms?

Abstract

This paper studies how financial markets react to ESG-related policies proposed by governments or relevant regulatory authorities by examining abnormal returns of public firms and banks. With ESG being a growing field ever since increased attention has been paid to social and environmental issues specifically, assessing the way markets perceive enforcements to adopt these practices is a valuable way to gain insight into whether they will eventually include them in their business models or not. The study uses data from Yahoo Finance and looks at 6 different regulations to assess this market reaction by developing python models to calculate the respective abnormal returns. The results show how these reactions can be generally positive or negative, and are heavily dependent on the specific regulation, the region, as well as the institution analyzed – public firms or banks. The broader implications of this paper lie in its expandability and the way further studies can be conducted with more firms and regulations to see more distinct factors emerge.