{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,26]],"date-time":"2026-10-26T18:35:35Z","timestamp":1793039735073,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/www.uspto.gov\/ip-policy\/copyright-policy\/copyright-basics"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>Many studies use difference-in-differences (DiD) estimators to study how carbon pricing affects stock returns. However, few studies have asked how much their results depend on the parallel-trends assumption that makes the results possible. This paper examines this question using the reform of the EU Emissions Trading System (EU ETS) Market Stability Reserve in 2018, which doubled the rate at which surplus allowances are withheld from the market. We use monthly risk-adjusted returns from eight iShares STOXX Europe 600 sector UCITS ETFs. We find a positive and statistically significant average effect using the wild-cluster bootstrap (p = 0.0078). This significance depends on the estimator. This result is not significant when we use Driscoll-Kraay standard errors, which allow the sectors to be correlated. We then use two additional tests that the literature does not usually do. First, we compute the breakdown value of Rambachan and Roth (2023), which says how large a violation of the parallel trend assumption the result can tolerate before its sign is no longer identified. We find a breakdown value of zero; the identified set contains zero even before violation of the assumption. Second, we compute the minimum detectable effect the design could reliably detect. It is 6.80% per year, which is greater than our estimated effect of 4.95% per year. The design therefore has only about 50% power to find the effect it computes. These two results explain each other. The design is not detecting a fragile true effect. A separate double machine learning analysis of allowance-price pass-through is not statistically distinguishable from zero. But the interval is too wide to say that pass-through is not economically meaningful. Our conclusion is about methods rather than carbon pricing. Results do not show that carbon pricing has no effect on European stock market returns, but the estimated effect from this sector-level DiD design is sensitive to the assumption it makes. With few sectors and noisy returns, significance can rest on the parallel-trends assumption, on pooling many periods, and on treating sectors as independent, rather than on a robustly identified effect. Breakdown values and power calculations show that this dependence is visible, and we suggest that such methods should be routinely reported in similar empirical studies. The Commission's July 2026 proposal would return the same intake rate to 12% from 2028, three years earlier than existing law, partly reversing the event we study. A natural next study is to use the same tests for both events, using firm-level data instead of sector-level data.<\/jats:p>","DOI":"10.2139\/ssrn.7664518","type":"posted-content","created":{"date-parts":[[2026,10,26]],"date-time":"2026-10-26T17:49:09Z","timestamp":1793036949000},"source":"Crossref","is-referenced-by-count":0,"title":["Breakdown Values and Power in Carbon-Equity Difference-in-Differences: Evidence from the EU Emissions Trading System"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0000-0001-6151-1216","authenticated-orcid":true,"given":"Yash Raj","family":"Lamsal","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,26]],"date-time":"2026-10-26T17:49:09Z","timestamp":1793036949000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7664518"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7664518","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}