This paper shows that emissions trading systems (ETSs) globally enhance stock price informativeness at the firm level. ETS is particularly beneficial for firms where carbon related information is financially material, earnings and returns are uncertain, and investors focus on carbon data. Our findings suggest that ETS reduces the cost of integrating carbon-related information by providing a transparent, market-based benchmark for carbon-related costs that are highly relevant for earnings forecasts. This leads to better-informed trading decisions and more accurate market prices. Correspondingly, analysts offer more precise and frequent earnings forecasts and are more likely to follow these firms after ETS implementation.
