Fuel prices impacts on stock market of metallurgical industry under the EU emissions trading system

•Metallurgy is the Spanish industry with the greatest energy consumption.•Fuel and Carbon prices impact on stock market returns of Spanish metallurgical sector.•VECM and panel econometric models are used to quantify these impacts.•Long-run negative effect of gas price on market returns is found.•Gas, oil and carbon price effects are firm-specific.

Metallurgical industry is among the largest industrial users of fossil fuels in the Spanish economy and it is one of the industries under the European Union emissions trading system. This study examines the long-run equilibrium relations and short-run interactions between fuels and European Union carbon emissions allowances price changes and the corporate value of Spanish iron and steel industry.From a multifactor market model specification, a cointegrated Vector Error Correction model is employed for the period covering 1st January 2013 to 15th September 2015 to embrace the analysis. Moreover, by using a panel data econometric approach, it is tested if the relationship of European Union carbon emissions allowances and fuel prices variations with stock returns are firm-specific.The results indicate a negative stable long-run relation between gas prices and stock market price changes of metallurgy sector and firm-specific effects. Regarding the EUA price change effect on aggregated stock market return, the VECM estimation did not find a significant long-run linkage. However, the results of EUA price change impact at firm level showed evidence for heterogeneity in this effect.