Policy Shocks and Market Reactions: An Event-Study Analysis on Chinas NEV Subsidy

Transportation, a significant contributor to global greenhouse gas emissions, is at the forefront of decarbonization efforts. New Energy Vehicles (NEVs) have emerged as pivotal in the shift towards sustainable mobility, particularly in China. Existing studies have indicated that subsidies provided by the Chinese government have played a significant role in promoting the development of NEVs. However, whether these subsidies have a similarly substantial impact on stock market performance remains undiscussed. This study explores the immediate impact of subsidy adjustments on stock market fluctuations within the NEV sector, an area previously underexplored. By employing an event-study methodology and analyzing data from 2010 to 2024, this paper identifies the short-term reactions of the stock market to subsidy announcements. The findings reveal that while subsidies have fostered market growth and technological innovation, their phase-out leads to mixed market responses, reflecting a complex interplay between policy changes and investor expectations. This analysis underscores the nuanced role of government interventions in shaping market dynamics and offers insights for policymakers aiming to refine subsidy strategies without destabilizing capital markets.