Papal Dividends: Do Popes’ Political Communications Move Economic Markets?

• In Event: Talking About Markets

Abstract

The literature on the effect of political events on economic markets is attentive to the influence of elections and institutional appointments. Less investigated is the economic impact of events related to alternative political leaders, for example religious authorities. This paper builds on new research on unconventional leadership and spiritual officials, focusing on the case of the Roman Catholic Pope. We study the material implications of the utmost relevant papal communications – the so-called encyclicals – for stakeholders associated with public issues addressed in these documents. We conjecture that investors are sensitive to Popes’ communications that clearly signal a policy approach directed at the scope of their economic activities. However, Popes have ideological leanings that make them more or less sympathetic to the use of markets to solve public policy issues. We thus expect that if a Pope leans towards a market-based approach to a specific issue, the most exposed sectors may be cheerful of a papal communication and materially benefit through stock returns. Vice versa, if a Pope is skeptical of market approaches, investors may see negative returns after the papal announcement. To test our theory, we propose an event study that traces the impact of Pope Francis’s 2015 climate encyclical (the Laudato Si) on the stocks of the global energy industry. We show that this encyclical by Francis, who is viewed as an opponent of profit-driven solutions to global problems and who distinctly criticized market-based climate policy arrangements, caused renewable energy companies to lose stock value after publication. We also demonstrate that this effect is concentrated among American firms, and is a result of the partisan framing of the encyclical in the US. The findings contribute to the assessment of the material impact of the communications of spiritual authorities, and to the understanding of the causal effects of the political positions of non-elected leaders.

Authors

• Lorenzo Crippa, University of Essex

• Federica Genovese, University of Essex