This study explores the unintended consequences of China's carbon emissions trading system (ETS), with a particular focus on firms' stock price downside risk (hereafter, downside risk). Utilizing data from Chinese listed firms between 2011 and 2023, we apply a difference-in-differences model to establish the causal link between the implementation of ETS and firms' downside risk. Our findings reveal that ETS significantly increases firms' downside risk, a result that holds across multiple robustness tests and after addressing potential endogeneity issues. This rise in downside risk is driven by...
