Investor Attention and Carbon Prices: Evidence From European Union and China

ABSTRACT We investigate the impact of heterogeneous investor attention on carbon prices. Although previous research has demonstrated the influence of investor attention on asset prices, how investors attribute attention toward the carbon‐market, emission, and environment issues, and their consequences on carbon prices remain unknown. Leveraging data from the European Union (EU) and Chinese (Guangdong and Hubei pilots) carbon markets, our regression results reveal that investor attention toward the carbon‐market and environment issues negatively affects carbon prices in the EU Emissions Trading System, whereas attention toward the carbon‐market and emission issues exhibits positive impacts in the Guangdong pilot. Interestingly, these effects are reversed in the subsequent month, implying a lasting effect of investor attention. Additional analyses suggest that the different reactions in the EU and China can be attributed to investor types and green assets diversity. Finally, we demonstrate the economic usefulness of heterogeneous investor attention in improving carbon trading investors' trading strategies.