Julian Trillig

Regulatory changes and the volatility of stock returns – the German solar energy sector

Purpose – The purpose of this paper is to determine the impact of political risk on the German solar energy industry. The authors analyze the period from 2006 to mid-2011, when the technological development of this sector was remarkable while the whole industry is depending on political support and subsidies. Design/methodology/approach – The authors apply an EGARCH model assessing potential changes in conditional volatility response of solar industry stock returns following political risk events. Findings – The results document major changes in political support of the solar industry drive capital market risk. Whereby favorable political news significantly decrease volatility response and unfavorable political news do not affect volatility response. Moreover, the authors find that the volatility response varies with the exposure to political risk. Companies with higher exposure to political risk show more significant volatility response. Practical implications – Political risk affects the cost of capital...