ABSTRACT
In this chapter, the authors illustrate the concept of Difference in Differences (DD) estimators by evaluating the effects of climate change regulation on the pricing of bonds across firms. DD estimators are typically used to recover the treatment effects of natural or quasi-natural experiments that trigger sharp changes in the environment of a specific group. The Panel Regressions (PA) is a legally binding international treaty on climate change. The PA obliges developed countries to support efforts to build clean, climate-resilient futures. One may thus hypothesize that adopting climate-related policies may affect financial markets. To provide such visual evidence, the developers revisit the simple OLS model and replace the treated and post_period indicators with month dummies for each group.
