The Cross-Section of Returns, Benchmark Model Parameters, and Idiosyncratic Volatility of Nuclear Energy Firms after Fukushima Daiichi
Posted: 29 Jan 2012 Last revised: 25 Dec 2015
Date Written: January 27, 2012
This study analyzes how the stock market returns, the factor loadings from the Carhart (1997) 4-factor model, and the idiosyncratic volatility of shares in energy firms have been affected by the Fukushima nuclear accident. In comparison with existing studies, which provide evidence of a wealth transfer from nuclear to renewable energy firms for specific countries, we use an international sample and investigate whether changes in the regulatory environment and the firm-specific commitment to nuclear and renewable energies correlate with the capital market's reactions to the Fukushima Daiichi accident. Our findings suggest that the more a firm relies on nuclear power, the more its share price declined after the accident. A commitment to renewable energies does not prevent declines in share prices but significantly helps to reduce the increase in market beta that is associated with this event. Nuclear energy firms which are domiciled in countries with a higher level of regulatory changes that were triggered by the catastrophe have lower abnormal returns than their peers. However, as a cross-sectional analysis reveals, higher commitments to nuclear power are the main driver for negative stock market returns. Furthermore, nuclear energy firms domiciled in countries with stronger regulatory shifts away from nuclear energy experience significant increases in the size- and book-to-market equity factor loadings from the Carhart (1997) 4-factor model. We conclude that capital market participants are able to differentiate between the affectedness of firms with respect to their product portfolio. Energy firms could prevent increases in market beta due to catastrophes such as the Fukushima Daiichi accident by shifting some of their energy production from nuclear to renewable or other energies.
Keywords: capital market reaction, conventional energy, event study, cross-sectional analysis, Fukushima-Daiichi, governmental pressure, nuclear accidents, nuclear power phase-out, renewable energy, corporate sustainability
JEL Classification: G14, C12, C21, G12
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