Political ideology and environmental investments

: empirical evidence from the EU and US

Abstract

In this thesis I examine the effect of political ideology on environmental investments, namely green and brown stocks. Previous research has shown that climate change beliefs vary between different political stances. People with right ideological views seem to distrust scientists regarding this issue, while the majority of left oriented people trust in the scientific consensus. In an effort to analyse the impact that political ideology has on stock returns, an index of political stance (IPS) is created with the help of yearly survey data from the European Commission. My results add to the existing literature by finding a significant positive effect of the IPS on green and brown stock returns. This analysis is repeated for European and American stocks. I find a significantly larger effect of the IPS on American stocks, compared to European stocks. This is in line with previous literature which highlights the differences in political systems in these two regions and the importance of media attention regarding green and brown stock returns. Furthermore, a classic event study methodology is used on six different climate change related policy implementations in the two regions, to analyse the short-term effect they have on cumulative abnormal returns of green and brown stocks. I find varying effects of these policies, further highlighting the importance of the major political ideology present in the region at that time, media attention on policies and sectoral effects of green policies.

Date of Award	25 Jan 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)