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Time-Frequency comovement among Green Bonds, Stocks, Commodities, Clean Energy, and Conventional Bonds
Abstract
The paper examines the inter-relationship between green bonds and other asset markets, including stocks, commodities, clean energy, and conventional bonds over 11 years from 2008 to 2019. The dynamic features of correlation across asset pairs over time and in different frequencies are assessed through the rolling window wavelet correlation approach. We find strong evidence that most correlation emerged and reached a peak in the aftermath of GFC 2007-2009. While comovement among stocks, commodities, and clean energy is found relatively high, the diversification benefit of green bonds is significantly revealed due to its low or negative correlation with stocks and commodities.
... Adding green bonds or ESG stocks to the portfolios with other financial assets, due to a low association, is a diversification investment strategy (Piserà & Chiappini, 2024;Reboredo & Ugolini, 2020). Investing in green bonds can diversify the exposure to the capital market, crude oil, energy commodities, conventional bonds, gold, and bitcoin (Ferrer et al., 2021;Naeem & Karim, 2021;Naeem et al., 2021b;Nguyen et al., 2021;Reboredo, 2018). Investing in ESG stocks can diversify gold, crude oil, commodity products and bitcoin (Andersson et al., 2022;Naeem & Karim, 2021). ...
... Green bonds, on the other hand, according to Naeem et al. (2021c), can operate as an effective diversifier rather than a hedge for gold (Naeem et al., 2021a). Nguyen et al. (2021) presented that green bonds are a diversifier for capital markets and conventional bonds, as well as crude oil (Naeem et al., 2021b) and bitcoin (Naeem & Karim, 2021). Second, on the function of ESG stocks, Mousa et al. (2022) explained ESG stocks as a safe haven for capital market, also gold and crude oil (Cagli et al., 2023). ...
... The result indicated that GB are significant diversifier for all other financial assets therefore, they are not hedge (Table 3-Panel A). This is consistent with Naeem et al. (2021aNaeem et al. ( , 2021b, Naeem and Karim (2021), and Nguyen et al. (2021) that GB are a diversifier for financial assets. According to Reboredo (2018) and Reboredo and Ugolini (2020), GB are also diversifier. ...
Climate change is posing new challenges to global sustainability, which attracts greater attention from fund managers' and investors' decisions to invest in environmental, social, and governance (ESG) aspects. Investing in financial assets, however, is subject to risks and volatility and requires sufficient knowledge to make decisions. This study investigated the potential of green bonds and ESG stocks as safe haven assets or as a hedge against other financial assets using daily data since January 2014 to November 2022 with DCC-GARCH model. The result indicated that ESG stocks and green bonds are safe havens for several other financial assets and safe havens during periods of high geopolitical risk. On the other hand, only ESG stocks were qualified as a hedge for conventional bonds. A portfolio that combines green bonds and ESG stocks with other financial assets can minimize risk, particularly the risk associated with financial assets that are not climate resilient. JEL Classification: G11, G15
... Lastly, another recent strand of literature focuses on the link between green bonds and green equities. From a bivariate perspective, Nguyen et al. (2020) investigate the interactions between green bonds and other asset classes, such as general and clean energy stocks, regular bonds and commodities, over time and across investment horizons using the rolling window wavelet correlation approach and the wavelet coherence. They report a significant co-movement between green and ordinary bonds and, although to a lesser extent, between green bonds and alternative energy stocks across practically all time periods and frequencies. ...
... The S&P Green Bond index (SPGBI) is used as a proxy for the green bond market (Pham, 2016;Nguyen et al., 2020;Huynh et al., 2020;Le et al., 2021). This index has historical data available since November 2008 and is one of the pioneering indices that track the financial performance of the global green bond market. ...
... A convincing explanation for this result is based on the fact that green and ordinary fixed income securities share many characteristics in terms of credit rating, issuer, currency, coupon rates and maturity. Similar strong relationships between green bonds and government and high-credit rating corporate bonds have been documented in Reboredo (2018); Nguyen et al. (2020); Pham (2020); Reboredo and Ugolini (2020); . Equally, a strong nexus is found between green stocks and general stocks irrespective of the horizon, with the sole exception of fuel cell stocks 3 . ...
This paper examines the interdependence between green financial instruments, represented by green bonds and green stocks, and a set of major conventional assets, such as Treasury, investment-grade and high-yield corporate bonds, general stocks, crude oil, and gold. To that end, a novel wavelet-based network approach that allows for assessing the degree of interconnection between green financial products and traditional asset classes across different investment horizons is applied. The~empirical results show that green bonds are tightly linked to Treasury and investment-grade corporate bonds, while green stocks are strongly tied to general stocks, regardless of the specific time period and investment horizon considered. However, despite their common climate-friendly nature, there is no a remarkable association between green bonds and green stocks. This means that these green investments constitute basically two independent asset classes, with a distinct risk-return profile and aimed at a different type of investor. Furthermore, green financial products have a weak connection with high-yield corporate bonds and crude oil. These findings can have important implications for investors and policy makers in terms of investment decision, hedging strategies, and sustainability and energy policies.
... Evidence from Islamic Stock Markets 2022; Ferrer et al., 2021;Hammoudeh et al., 2020;Saeed et al., 2021), stock market (Chai et al., 2022;Mensi et al., 2022;Nguyen et al., 2021), financial market (Elsayed et al., 2022;Karim & Naeem, 2022;Reboredo & Ugolini, 2020), green equity (Chatziantoniou et al., 2022;Pham, 2021), sustainable investments (Chatziantoniou et al., 2022), commodities (Bibi et al., 2022;Naeem et al., 2021;Nguyen et al., 2021;Rao et al., 2022;Tsagkanos et al., 2022). Based on the research findings, the relationships between the examined variables exhibit variations across different periods. ...
... Evidence from Islamic Stock Markets 2022; Ferrer et al., 2021;Hammoudeh et al., 2020;Saeed et al., 2021), stock market (Chai et al., 2022;Mensi et al., 2022;Nguyen et al., 2021), financial market (Elsayed et al., 2022;Karim & Naeem, 2022;Reboredo & Ugolini, 2020), green equity (Chatziantoniou et al., 2022;Pham, 2021), sustainable investments (Chatziantoniou et al., 2022), commodities (Bibi et al., 2022;Naeem et al., 2021;Nguyen et al., 2021;Rao et al., 2022;Tsagkanos et al., 2022). Based on the research findings, the relationships between the examined variables exhibit variations across different periods. ...
... The price connectedness between the green bond and financial markets investigated by Reboredo and Ugolini (2020) noted that the green bond market is the receiver of a net price spillover, and green bonds receive significant price spillovers from treasury and currency markets. Nguyen et al. (2021) investigated the interrelationship between green bonds and various asset markets. The findings indicate that there is a significant level of comovement among stocks, commodities, and clean energy. ...
This study examines the long-term relationship between Islamic Stock prices, faith-based investments, green technology, clean energy, and green finance. The variables used in the study are the Clean Energy Index for clean energy, Green Bond Index for green finance, the Renewable Energy and Clean Technology Index for green technology and the Islamic Market Index for Islamic Stocks’ closing prices, as explained by S&P. The utilized research model is the NARDL model, and the findings reveal a cointegration relationship between faith-based and green finance instruments. Green finance instruments are unsuitable for the research period to be used as a safe-haven or effective diversification instrument for faith-based portfolios. Comprehending faith-based investments’ relationship with other green finance assets is critical in supporting sustainable development with financial market instruments, which provide environmental and societal benefits. As a result, apprehending the relationship between faith-based investments and green finance instruments can contribute to increasing social and environmental responsibility awareness in financial markets. The study’s outcomes hold significance in understanding how investors in financial markets react to positive and negative shocks, estimating these effects, efficiently managing portfolios comprising green financial assets and faith-based investments, and formulating an appropriate investment strategy.
... The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/2044-1398.htm Moreover, the literature reveals that several prior studies have demonstrated the connection between green finance assets and various other asset classes, including conventional equities, fossil fuels, and other commodity classes, and provided evidence that green assets serve as alternative investments (see Arif et al., 2021;Nguyen et al., 2021;Karim et al., 2022;Naeem et al., 2022;Arfaoui et al., 2023;Mzoughi et al., 2024). Furthermore, green bonds have been identified as valuable risk management tools in prior research studies. ...
... This result is consistent with the work of Tiwari et al. (2023), which indicates that green bonds serve as effective diversifiers, hedges, or safe havens for green investment. In a related study, Nguyen et al. (2021) provide evidence of diversification benefits associated with green bonds. Reboredo et al. (2022) indicate that green bonds have substantial diversification benefits for low-carbon portfolios. ...
... They revealed no significant connectedness between green bonds and green equities. Meanwhile, Nguyen et al. (2021) found a modest co-movement between green bonds and green energy stocks under various market regimes. Based on the findings from the connectedness approach, we suggest that green bonds have the potential to serve as diversification assets. ...
Purpose
This study attempts to examine the time-varying volatility spillovers between environmentally sustainable assets and quantify the value-at-risk of the portfolios across various frequencies.
Design/methodology/approach
To accomplish these objectives, this paper utilizes a connectedness index-based TVP-VAR model and applies the wavelet-based VaR ratio to daily data spanning from January 2018 to September 2023.
Findings
The empirical findings reveal a notable increase in the connectedness index between green stocks and green bonds during the COVID-19 crisis, signifying evidence of a contagion effect. The portfolio’s risk ratio also exhibited a sharp rise amid the pandemic, particularly over medium and long-term horizons, driven by increased spillover among green assets. Notably, our analysis indicates that green bonds influence the connectedness system between green stocks and the value-at-risk ratio, reducing volatility spillover and portfolio risk ratios across various investment horizons. These results highlight the role of green bonds as an effective diversification asset against the risks associated with green equities.
Originality/value
This research investigates the dynamic connectedness and value-at-risk ratio between eight green sectoral renewable energy and non-energy equities and green bonds. We put forward some portfolio implications for green investors with an environmental consciousness who desire to decarbonize their portfolios and mitigate environmental issues.
... Besides Gold, the preference for other safe haven assets depends on the countries' political and econo-financial conditions (Li and Lucey 2017), geopolitical risk (Selmi, Bouoiyour, and Wohar 2022), and investors' degree of loss aversion (Pho et al. 2021). Studies also favor various types of bonds, such as conventional bonds, green bonds, Islamic bonds, or Sukuks (e.g., Choudhury, Kinateder, and Neupane 2022;Nguyen et al. 2021) as hedge or safe haven assets. Moreover, investors can also find foreign exchange currencies 3 (e.g., Ranaldo and Söderlind 2010;Tachibana 2022) and cryptocurrencies, notably, Bitcoin (e.g., Bouri, Shahzad, et al. 2020;Chkili, Rejeb, and Arfaoui 2021;Corbet, Larkin, and Lucey 2020;Mariana, Ekaputra, and Husodo 2021;Mensi et al. 2020) as hedge or safe haven assets. ...
... In alignment with sustainable investment goals, amid the pandemic and a weak correlation between green bonds and equity markets (Dutta, Bouri, and Noor 2021;Ferrer, Shahzad, and Soriano 2021;Gao, Li, and Wang 2021;Kuang 2021;Nguyen et al. 2021;Aiube 2020), green bonds are recognized as an instrument for diversifying portfolios (Guo and Zhou 2021;Jiang et al. 2022;Yi et al. 2021). They act as a hedge against various markets such as treasury bonds, corporate bonds, energy, and other commodities (Naeem, Bouri, et al. 2021;Naeem, Nguyen, et al. 2021;Reboredo 2018), and a safe haven against conventional financial assets (Arif et al. 2022;Jiang et al. 2022). ...
We conduct a meta‐literature review of safe haven and hedge assets covering 617 papers published in 170 sources from 1996 to 2022 based on the Scopus database. This review includes a qualitative analysis of the bibliometric content and a quantitative analysis of the citations to identify the primary research streams and offer future research directions. The analysis identifies four research streams in the hedge and safe haven literature: (1) Gold as a hedge and safe haven asset; (2) various models estimating the hedge and safe haven ability of potential assets such as precious metals, crude oil, and cryptocurrencies; (3) Bitcoin as a safe haven asset; and (4) the role of various safe haven assets, particularly Gold and Bitcoin, during the COVID‐19 crisis. The meta‐review also classifies the most influential authors focusing on hedging and safe haven research through co‐authorship and collaborative network analysis. Finally, future research directions are formulated with a wide set of potential research questions and areas. The outcomes of this meta‐review study are useful for researchers, financial analysts, and investors searching for the best safe haven assets during unfavorable market conditions.
... Li et al. (2021) discovered a one-way causality between investment in renewable energy and GRFin. Nguyen et al. (2021) investigated the nexus between green bonds and clean energy. ...
... Negative values at the extreme quantile of RECON and GRFin have also emerged from our study, and it is quite natural as per Nguyen et al. (2021). As per them, the extreme uses of these two economic indicators only lead to the exploitation of resources. ...
Green finance strategies have been established to direct funding towards green energy initiatives and promote the advancement of green technology for ecological sustainability. Moreover, the progress in green technology has played a significant role in the growth of green energy infrastructure in China. Nevertheless, there have been no prior investigations undertaken in China that specifically examine the impact of green financing and green technology on green energy within an asymmetric quantile framework. Thus, in the current study, a “multivariate quantile-on-quantile regression (m-QQR)" methodology was used to experimentally examine the link between green energy usage and green financing in China controlling the environmental sustainability index, green technology, and economic progress utilizing the data from 2000 to 2022. Results from this study confirm that China benefits in terms of rising green energy consumption only at the mid-levels of green investment projects, if more high-cost projects are added beyond this mid-level, the active projects’ potential will be diminished, and consumption of green energy would decline. This study confirmed the conservation hypothesis. A retroverted relationship has emerged between the consumption of green energy and environmental sustainability. Finally, green technology innovation is coupled with green financing for green energy transition. This study posits that the Chinese economy has the potential to experience significant benefits from the adoption of green energy, mostly driven by breakthroughs and the integration of green technology.
... Our paper uses the approach of multiple wavelet correlation which comprises a single set of multiscale correlation patterns, making relationships easier to analyze and interpret and providing better insight into an overall statistical relationship about the multivariate relationship. Our results in Figs. 3, 4 suggest that the green stock indices pairs with GBSI offer the maximum opportunities for diversification compared to other green bond pairs based on both the wavelet rolling window correlations and the wavelet quantile correlation approach, as also shown by Pham and Nguyen (2021) and Nguyen et al. (2021). Next, our results of quantile connectedness show that GBSI affects the market system by 56% and is influenced by the market by 71.3% per cent, indicating that GBSI is a net receiver of shocks (− 15.3%). ...
... Finally, the quantile connectedness approach shows a heterogenous spillover effect across the quantiles, which offers asymmetric portfolio diversification opportunity. Consequently, based on the above analysis of the wavelet rolling window correlations, the wavelet quantile correlation, and quantile connectedness approaches, we show that GBSI provides the most potential for diversification when compared to other green bond pairings, as demonstrated by Pham and Nguyen (2021) and Nguyen et al. (2021). These results are superior to many other studies in the literature since earlier studies have employed the cointegration approach of Johansen (1991) or Escribano and Granger (1998) to analyze the integration among financial assets (Candelon et al., 2013;Ghosh & Kanjilal, 2016). ...
This paper examines the spillover effects, connectedness and correlation among eco-friendly asset classes using robust estimation techniques such as rolling window wavelet correlation, multiscale quantile correlation coefficient and quantile VAR approaches. Specifically, the eco-friendly assets examined include the S&P Green Bond Select Index Price Index, the S&P Green Bond Index Price Index and the Dow Jones Sustainability Index World Price Index. Additional variables include the constituents of the MSCI Global Environment Price Index: Alternative Energy, Green Building, and Pollution Prevention or Clean Technology. We use daily returns from August 31, 2010, to January 13, 2022. Our results confirm that green bond indices offer opportunities for diversification across varying quantiles and time scales when paired with green stocks. Results confirm that investors can exploit the hedging and safe-haven potential of green bonds against green stocks in times of turbulent market.
... The study by Ferrer et al. (2021) Hedge, diversifier and safe-haven features integrates wavelet methods with network analysis and finds that the interdependence between green bonds and traditional asset classes increases considerably during periods of heightened uncertainty, such as the European sovereign debt crisis. Other studies have shown significant comovements between the green bond and financial markets, suggesting that this asset class might have had diversification benefits for investors in the prepandemic period (Reboredo, 2018;Nguyen et al., 2021;Pham and Nguyen, 2021). Although this stream of literature uses different methodologies to assess the safe-haven role of ESG investments, little research is based on the CQG analysis. ...
Purpose
This study aims to conduct an empirical investigation to assess the hedge, diversifier and safe-haven properties of different environmental, social and governance (ESG) assets (i.e. green bonds and ESG equity index) vis-à-vis conventional investments (namely, equity index, gold and commodities).
Design/methodology/approach
The authors examine the sample period 2007–2021 using the bivariate cross-quantilogram (CQG) analysis and a dynamic conditional correlation (DCC) multivariate generalized autoregressive conditional heteroskedasticity (GARCH) experiment with several extensions.
Findings
The evidence shows that the analyzed ESG investments exhibit mainly diversifying features depending on the asset class taken as a reference, with some potential hedging/safe-haven qualities (for the green bond) in peculiar timespans. Therefore, the results suggest that investors might consider sustainable investing as a new measure of risk reduction, which has interesting implications for both portfolio allocation and policy design.
Originality/value
To the best of the authors’ knowledge, this study is the first that empirically investigates at once the dependence between different ESG investments (i.e. equity and green bond) with different conventional investments such as gold, equity and commodity market indices over a large sample period (2007–2021). Well-suited methodologies like the bivariate CQG and the DCC multivariate GARCH are used to capture the spillover effect and the hedging/diversifying nature, even in temporary contexts. Finally, a global perspective is used.
... Some empirical studies showed that the relationships between financial assets change over time [7][8][9][10]. The interdependencies and correlations among assets can also vary depending on the investment horizon, which refers to the frequency [58][59][60]. Different types of investors operate with different investment horizons. Active investors and day traders typically focus on short-term investments, which can range from hours to days. ...
This article investigates the intricate relationships between sovereign credit default swaps (CDS) and various Turkish financial assets, including the US Dollar to Turkish Lira exchange rate (USDTRY), the Borsa Istanbul 100 (XU100) stock index, and government bond yields. Employing a rigorous wavelet coherence analysis that captures the timefrequency domain, this study utilizes daily data from November 2008 to July 2022 period containing important financial, economic and global health crises, such as Great Recession, European Debt Crises, and COVID-19 pandemic. The wavelet coherence results uncover that the causality between variables is contingent on both the frequency domain and evolves dynamically over time, with the most significant interdependencies manifesting in the medium term. Moreover, the analysis reveals that government bond yields, and their respective volatilities positively impact CDS spread and its volatility. Similarly, the USDTRY rate leads to positive changes in the CDS spread. By contrast, the volatility of CDS spreads positively influences foreign exchange volatility and the XU100 index volatility. The CDS spread negatively affects the XU100 index. Overall, the findings elucidate the direction of causality between Turkish CDS spread and retained Turkish financial assets and then provide valuable information on the predictive power of those securities for investors, financial risk managers, and policymakers.
... A large literature has analyzed diversification benefits of green bonds by investigating the relationship between green bonds and other financial markets (Reboredo 2018;Hammoudeh et al. 2020;Nguyen et al. 2021;Pham 2021;Karim et al. 2024;Hau et al. 2024). They find that green bonds are strongly correlated with fixed-income instruments, but weakly correlated with stocks and commodities, suggesting that green bonds can add diversification benefits to the stock and commodity portfolios. ...
This paper investigates whether China’s green bonds should be included in investors’ portfolios. We employ the dynamic robust optimization approach to examine the diversification benefits derived from investing in green bonds and compare them with those derived from conventional bonds. The dynamic robust optimization method is based on minimizing the worst-case Conditional Value at Risk (WCVaR) under a mixture of dynamic R-vine copulas. We find that the dynamic robust model performs well in terms of risk-adjusted returns, and green bonds provide more diversification benefits than conventional bonds in the out-of-sample setting. The diversification benefits of green bonds are stronger over the post-2016 period due to the top-down policy support from the Chinese government. While for the green portfolios, the portfolios with the greenest green bond indices have the least diversification benefits in most cases. Overall, our findings suggest that China’s green bonds should be included in optimal portfolios but with caution.
... As a result, considerable attention and an increasing number of studies have recently been devoted to the green finance market. The main literature on the relationship between green assets and other assets can be roughly divided into the following aspects: the interconnections between green assets themselves [15,20,21] and those between green assets and other financial assets/commodities [22][23][24]. ...
In this study, we investigate the volatility spillover effects across uncertainty indices (Infectious Disease Equity Market Volatility Tracker (IDEMV) and Geopolitical Risk Index (GPR)), carbon emissions, crude oil, natural gas, and green assets (green bonds and green stock) under extreme market conditions based on the quantile connectedness approach. The empirical findings reveal that the total and directional connectedness across green assets and other variables in extreme market conditions is much higher than that in the median, and there is obvious asymmetry in the connectedness measured at the extreme lower and upper quantiles. Our findings suggest that the uncertainty caused by COVID-19 has a more significant impact on green assets than the uncertainty related to the Russia–Ukraine war under normal and extreme market conditions. Furthermore, we discover that the uncertainty indices are more important in predicting green asset volatility under extreme market conditions than they are in the normal market. Finally, we observe that the dynamic total spillover effects in the extreme quantiles are significantly higher than those in the median.
... The literature review shows that green bonds are effective in improving environmental performance, but only when they are certified by third parties (Yeow & Ng, 2021). Additionally, green bonds offer distinct advantages to the issuers and shareholders (Nguyen et al., 2021). Research shows that green bond issuance resulted in a positive market reaction and raised the company's value (Kuchin et al., 2019). ...
The aim of this article paper is to try to establish whether or not there is a relationship between the issuance of green bonds and the achievement of selected SDG goals. Achieving such a goal required: (1). Defining green bonds - presenting the problem of recognition classification against the backdrop of legal regulations, (2). Determine the scale of green bond issuance and funding directions (3). Assess the impact of green bond issuance on the achievement of selected Sustainable Development Goals (SDGs). In particular, Pearson correlation coefficients, multidimensional scaling and linear ordering results for metric data were used. In the first step, multidimensional scaling is used to visualise objects in two-dimensional space. The study confirmed the link between the SDG goals – goal 7 (7.2.1.) related to energy and the green bond market. It also showed that market size matters for achieving the SDG goals.
... Naeem et al. (2021) discovered that during COVID-19, green bonds outperformed conventional bonds owing to their higher transparency in interest rates and investment return. In the same way, Nguyen et al. (2021) examined the relationship between green bonds and factors like clean energy from 2008 to 2019, revealing strong evidence of green bonds' influence on clean energy development. Another study by Taghizadeh-Hesary et al. (2021) analysed the green bond market in different regions, particularly Asia and the Pacific. ...
In the era of unprecedented global challenges, this research delves deep into the complex nexus of sustainable development, employing a comprehensive analytical framework spanning 68 nations from 2013 to 2022. By integrating advanced statistical techniques, including fully modified ordinary least squares (FMOLS) and a two-step system generalised method of moments (GMM), this study investigates the relationships between green financing, climate risks, and economic, social and governance (ESG) readiness within the sustainable development goals (SDGs) framework. The findings unveil significant insights: green financing emerges as a catalyst, exhibiting positive associations with the SDGs index and ESG readiness. These results underscore the critical role of sustainable financial mechanisms in fostering economic growth, societal well-being, and effective governance. Conversely, climate risks pose formidable challenges, displaying negative correlations with the SDGs index and ESG readiness. These findings highlight the important role of sustainable financial mechanisms and the urgency of climate resilience strategies in shaping nations' preparedness for sustainable development. This research contributes methodologically by employing advanced econometric techniques and offers substantial policy implications. Policymakers are urged to prioritise green financing initiatives, incentivise environmentally conscious investments, and implement robust climate adaptation policies. The study serves as a clarion call for businesses, investors, and policymakers to collaboratively chart a course towards a sustainable future, embracing evidence-based strategies, and inclusive policies. This study offers actionable insights for policymakers, underlining sustainable development's economic, social, and governance dimensions in the context of green financing and climate resilience.
... Substantial efforts are being made to combat this temperature increase through the implementation of decarbonisation policies. The 2016 Paris summit agreement marks a significant milestone in the journey to achieve net-zero emissions by 2050 (Mirza et al. 2023;Naeem and Arfaoui 2023;Nguyen et al. 2021). Corporations and investors are increasingly prioritising environmental concerns. ...
This study delves into the connection between Environmental, Social and Governance (ESG) indices and emerging Decentralised Finance (DeFi) assets. Specifically, it explores the ever-changing, frequency-based linkage between these ESG indices and innovative DeFi assets. Employing the wavelet coherence technique, we analyse a broad range of ESG indices, spanning emerging, developed and US indices, alongside various DeFi assets. This examination covers a period encompassing the COVID-19 pandemic and the Russian-Ukrainian conflict to assess market linkages during extreme events. We then calculate optimal weights and hedge ratios for ESG-DeFi asset pairs to evaluate portfolio implications. Wavelet analysis results frequently show no connection between ESG indices and DeFi assets, underscoring the diversification benefits of adding DeFi to an ESG portfolio. However, this relationship notably strengthens at the pandemic crisis's onset, indicating DeFi assets lose diversification potential during turbulent times. Portfolio allocation should mainly favour ESG indices during normal periods, with minimal variations in optimal weights pre- and post-COVID. Meanwhile, hedge ratio analysis suggests DeFi assets make sound investments during crises, although hedging costs increase during turbulent periods. These findings hold relevance for investors, portfolio managers and policymakers.
... Consequently, investors should only hold commodities in their portfolio for a short-time horizon, as long-time horizons eliminates the diversification benefit. The findings are supported by Nguyen et al. (2021), who also used wavelet analysis to determine the time-varying co-movement of commodity and equity markets. They found that the correlation is lower in the short-term and medium-term investment horizons and not in the long-term investment horizon. ...
The growing prominence of generating a well-diversified portfolio by holding securities from multi-asset markets has, over the years, drawn criticism. Various financial market events have caused asset markets to co-move, especially in emerging markets, which reduces portfolio diversification and enhances return losses. Consequently, this study examines the time–frequency co-movement of multi-asset classes in South Africa by using the Multivariate Generalized Autoregressive Conditional Heteroscedastic–Asymmetrical Dynamic Conditional Correlation (MGARCH-DCC) model, Maximal Overlap Discrete Wavelet Transformation (MODWT), and the Continuous Wavelet Transform (WTC) for the period 2007 to 2024. The findings demonstrate that the equity–bond, equity–property, equity–gold, bond–property, bond–gold, and property–gold markets depict asymmetrical time-varying correlations. Moreover, correlation in these asset pairs varies at investment periods (short-term, medium-term, and long-term), with historical events such as the 2007/2008 Global Financial Crisis (GFC) and the COVID-19 pandemic causing these asset pairs to co-move at different investment periods, which reduces diversification properties. The findings suggest that South African multi-asset markets co-move, affecting the diversification properties of holding multi-asset classes in a portfolio at different investment periods. Consequently, investors should consider the holding periods of each asset market pair in a portfolio as they dictate the level of portfolio diversification. Investors should also remember that there are lead–lag relationships and risk transmission between asset market pairs, enhancing portfolio volatility. This study assists investors in making more informed investment decisions and identifying optimal entry or exit points within South African multi-asset markets.
... Reboredo (2018) claimed that the green bonds are excellent tools in terms of portfolio diversification when combined with stocks and energy market instruments. Likewise, Nguyen et al. (2021) documented that green bonds can be used for portfolio diversification due to their weak correlation with stocks and commodities. Also, Naeem et al. (2021b), Ferrer et al. (2021), Naeem et al. (2022) and Ozkan et al. (2024) emphasize the risk reduction benefits of green bonds. ...
Achieving sustainable development is one of the main issues at the global level and both public and private sector enterprises need to make large – scale investments to fight against climate change. In this respect, green bonds gain importance to raise money for environmentally – friendly projects, especially clean energy. Proceeds from green bonds are earmarked towards financing of investments that have positive environmental impacts. This paper explores the relationship among green bond issuances and stock market reaction with special focus on renewable energy firms. Herein, through a dataset of green bond issuance announcements worldwide by 46 unique firms over the period from 2014 to 2023, we investigate how the share prices respond to such announcements using event – study methodology. From the empirical evidence of the downward stock price movements, we suggest that investors react negatively to the announcement of green bond issuances. In other words, we find significant and negative cumulative average abnormal returns (CAAR) across all the event windows except in the window of [0, 10], meaning that our findings are robust to several alternative event windows. Further, we determine that the share price response, in general, does not differ depending on the use of green bond proceeds and the years.
... En ese contexto, los mercados de activos financieros ofrecen cada vez más vías financieras responsables con el medioambiente (Abdullah et al., 2023). Esta situación cobra mucha importancia a nivel científico cuando se trata de estudiar la conexión y la volatilidad de los mercados financieros que ofrecen finanzas verdes, tras cuyas iniciativas subyacen proyectos ambientales (Nguyen et al., 2021). En relación con ello, los bonos verdes ofrecen una alternativa que permite captar capital para financiar proyectos verdes y ambientalmente responsables (Flammer, 2021). ...
This research paper analyzes the spillover effects of volatility between the U. S. green and non-green bond markets with international market volatility between 2018 and 2023. The empirical work used time and frequency domain methodology to analyze the connectivity in the short, medium, and long term. The results demonstrate that both green and non-green bond markets are recipients of volatility, although green bonds receive volatility to a lesser extent than traditional bonds. Despite this, traditional bonds become recipients of volatility during periods such as the COVID-19 pandemic, while green bonds experience volatility reception during the Russia-Ukraine conflict period.
... Studies in the yellow cluster examined the role of financial institutions and instruments in transforming the economy into a low-carbon economy and promoting sustainable projects (Campiglio, 2016;Fatica & Panzica, 2021). The studies grouped in the blue cluster (Nguyen et al., 2021;Reboredo, 2018) among many others investigated the co-movement of green bonds and other financial instruments across varying periods (Ferrer, 2021). These studies focussed on ensuring compliance of green bonds and other GF instruments with environmental standards (Ehlers & Packer, 2017) within the larger framework of sustainable finance, thus contributing to effective climate policy. ...
The present study explores the intersection between green finance (GF) and environmental sustainability (ES) with the help of comprehensive bibliometric and content analysis techniques, unveiling new perspectives on this synergy and contributing novel insights to the field. By synthesizing a wide range of literature, this study provides an important understanding of the dynamics of GF and its implications for ES. The bibliometric analysis helps identify key trends, emerging themes, influential contributors, prominent journals, and institutions contributing to the field of GF. For analyzing the co-citations of authors, publications, journals, and generation of keywords VOSviewer software has been used. Based on an extensive exploration of past research, this study synthesizes the academic literature and offers a comprehensive overview of the emerging field of GF. The findings of our study reveal that GF fosters ES through green innovation, public spending, private participation, and digital finance. These results broaden the current state of GF and provide significant implications for policymakers, researchers, practitioners, and other stakeholders in navigating the complexities of GF and its role in promoting sustainable growth. Through its interdisciplinary approach and rigorous analysis, this manuscript enriches the growing body of knowledge on GF and its role in fostering a sustainable future. Furthermore, the study points out several limitations and knowledge gaps, suggesting avenues for future research to address these gaps.
... Energy conservation offers a variety of options, said [6]. Saving energy, cutting production costs, and increasing competitiveness are all benefits of an effective energy system [7]. ...
Green energy (GE) is frequently associated with sustainable development, which seeks to reduce global warming and its adverse effects on the environment, economy, and social justice. This study examines the impact of green energy on economic prosperity, green economic recovery, and long-term sustainability. This study analyses 33 industrialized and developing nations between 1991 and 2022 in the context of green energy, sustainable economic growth, and green economic recovery. Pooled Ordinary Least Squares (OLS), the Fixed Effects Model (FEM), and the Random Effects Model (REM) are employed for analysis, and outcomes are analyzed using the Hausman specification test. The results show that both population increase and gross domestic product per capita significantly affect sustainable development. When compared, a hike in green energy prices contributes considerably to and positively to sustainable development. These results are helpful for policymakers and newcomers interested in green energy and renewable energy sources since they provide a framework to conduct more research and develop policy.
... CO 2 may be affected negatively and positively by WTI shocks (Hammoudeh et al. 2014;He and Richard 2010), environmental degradation (Saboori et al. 2016), air pollution (Dong et al. 2021), energy substitution and its promotion (Ullah, Chishti, and Majeed 2020) and energy use (Abban et al. 2023;Agbanike et al. 2019;Ali et al. 2022;Farid et al. 2023;Nuţă et al. 2021;Qin and Ozturk 2021;Zhang et al. 2023), informality . Several studies have examined the correlation between the broad economic indicators and WTI shocks (WTIs) (Apergis and Payne 2015;Hammoudeh et al. 2014;Naeem et al. 2022;Nguyen et al. 2021). The WTI shocks are subject to random, sometimes surprising changes. ...
This study evaluates the factors contributing to carbon emissions in China between 2002 and 2021, considering the impact of GDP growth, shocks in oil prices, trade liberalization, and energy use. Using the dynamic simulated ARDL (SARDL) model, we indicate a long-term link between trade liberalization, oil prices (WTI) shocks, GDP growth, energy use, and CO2. The novel SARDL revealed a direct relationship between trade liberalization and CO2 in China in the long term. However, the results show a negative impact of WTI shocks on CO2 emissions. The study suggests that renewable energy (RE) significantly and negatively affects China's CO2. In addition, the findings concluded that, in the case of China, GDP has an insignificant long-run relationship with CO2 emissions. It provides valuable insights for policymakers, researchers, and industry stakeholders to enhance RE and promote sustainable energy practices.
... While it is positive to have many studies on the same topic, the negative is the need to clarify how loyalty occurs, mainly because the primary studies provide many scattered variables and promote conflicting results. For example, Nguyen et al. (2021) found a positive relationship between satisfaction and loyalty. However, Bakrie et al. (2019) tested the same relationship with students at the University of Palembang, Indonesia, and found no significant effect. ...
This study synthesized and integrated findings from diverse research on the antecedents and moderators of student loyalty in the higher education sector. Through a comprehensive meta-analysis, the research sought to understand the primary drivers of student loyalty and the potential cultural and contextual indicators that might influence these relationships. This meta-analysis analyzed 103 studies involving over 54,000 students from over 60 countries across five continents. The study identified key antecedents of student loyalty. Satisfaction had the most influence on loyalty, followed by student engagement and perceived value. We also detected significant cultural and contextual moderators. This research offers a holistic view of student loyalty, bridging gaps from conflicting findings in prior literature.
... Flammer [13] and Pástor et al. [46] state that green bonds send positive environmental signals to the market, attracting both institutional and retail investors. Lee et al. [5] Re-boredo [47], Duan et al. [48], Nguyen et al. [49], Dutta et al. [50], Le et al. [51], and Arif et al. [52] believe that green bonds can serve as effective hedging tools against geopolitical risks. Wang et al. [53] believe that the easing of GPR has boosted renewable energy cooperation and increased the demand for green bonds. ...
This study investigates whether green bonds have an issuance cost advantage over conventional bonds (greenium), examines the impact of geopolitical risks on their price dynamics, and explores the industry-specific effects of such risks in the financial sector. Using a dataset of 270 green bonds and 667 conventional bonds from May 2018 to August 2021, this study applies a two-step panel estimation method to analyze the influence of geopolitical risks on green bond pricing. The findings indicate that green bonds in China have an issuance cost advantage compared to traditional bonds, with a premium of 10–12 bps. Additionally, both recent and historical geopolitical risks, including GPR threats and GPR acts, significantly reduce green bond financing costs, with the China-specific geopolitical risk index having the most substantial impact, lowering costs by up to 17.4 bps. This study also highlights the financial sector, where green bonds do not display an issuance premium, and geopolitical risk has a slightly lower effect compared to the overall market. These results provide a comprehensive analysis of the impact of geopolitical risks on the pricing of Chinese green bonds, utilize strict screening criteria and the latest two-stage panel estimation method for more reliable analytical conclusions, and establish green bonds as reliable tools for sustainable investment.
This study examines SRI Sukuk and bond literature using scholarly literature and bibliometric analysis. VOS Viewer software is used for analysis. A total of 381 publications on SRI Sukuk and bond frontier were found in the Scopus database from 2016 to 2023. More articles on SRI frontier indicate increased interest. The use of terms like “green bond,” “sustainable development,” and “climate finance” shows a growing trend towards integrating SRI principles with environmentally responsible investment practices. Yet, insufficient research on SRI sukuk hinders future studies. This analysis highlights untapped knowledge in the SRI field and suggests future research directions. The findings reveal yearly publication and citation trends, emerging research areas, and the most influential publication.
We investigate the tail risk spillover, co-movement, and causal effect between climate risk and international energy markets using daily data from 2010 to 2022. Employing Bua et al.'s (2022) innovative measures of climate risk and various methodologies, we discover an asymmetric spillover of tail risk from climate to energy markets, emphasizing systemic tail risk contagion in extreme market conditions. Notably, climate risk primarily transmits downside tail risk in bearish states. The dynamic, negative, time-varying correlation between climate risk and energy markets is highlighted by wavelets analysis. Our study underscores that fluctuations in climate physical and transition risks can predict energy market tail risks, revealing tail risk dependence. The results also indicate a unidirectional causality from climate risks to the energy market.
This study aimed to determine the relationship between green bonds issuance and the Sustainable Development Index (SDI) using panel data involving several countries in Asia, namely the Philippines, Indonesia, China, Japan, Thailand, Hong Kong, Korea, Malaysia, and Singapore. The study used secondary data sourced from publications and dynamic statistics provided by the Asian Development Bank and the Human Development Report. The authors applied qualitative analysis in the form of movement analysis of trend data patterns as well as quantitative analysis using Fixed Effect Model (FEM) panel data regression. The results show that green bonds are positively and significantly correlated with the SDI. This indicates that when a country is actively issuing green bonds to finance sustainable projects, it contributes to an overall improvement in sustainable development. To address the challenges of sustainable development, the Philippines, Indonesia, and Thailand governments need to formulate appropriate policy measures. Raising environmental awareness and education is an important priority in order to build public understanding of environmental impacts and the need for sustainable development. In addition, the government should strengthen pro-environmental policies and provide fiscal incentives to support sustainable investment, creating a conducive environment for investors. China has to accelerate the transition from fossil energy sources to renewable energy. Moreover, it is necessary to implement policies that promote energy efficiency in key sectors.
This study conducts an empirical analysis of the impact of climate risk on Environmental, Social, and Governance (ESG) investments in Asia. Using monthly data from 2015 to 2022 for 11 Asian countries and applying wavelet coherence analysis with a panel Auto-regressive Distributed Lag Model (ARDL) cointegration approach, the study concludes that (1) ESG and stock market returns are positively correlated during economic turmoil in China and Malaysia; (2) climate risk positively influences ESG returns, suggesting that it enhances returns during uncertain times rather than having a detrimental effect; (3) returns on conventional assets are negatively impacted by climate risk; and (4) ESG investments serve as an effective hedge against climate risk and provide a sound strategy for portfolio diversification in the Asian market.
This study investigates whether green bonds (GBs) can hedge against geopolitical risk (GPR). This study extends the booming literature on GPR and GBs, develops a modified connectedness network model to measure the connectedness between GPR and GBs, confirms the hedging property of GBs against GPR, and becomes the first to discuss alternative hedging properties of GBs against GPR. We find evidence of market-, time-, and quantile-varying linkage between GPR and GB markets based on the time-varying Granger causality test and quantile extended joint spillover index model. We confirm via a regression model that only the GB markets in China and Japan can hedge against GPR. At the same time, GB in China remains a weak hedging and safety-haven asset simultaneously. The results remain robust for alternative proxy variables, data frequency, and model specification. Finally, the MVP approach provides superior performance while maintaining weak hedging and safety-haven properties against GPR. This study has considerable portfolio-related implications: (1) it offers an efficient hedge (i.e., GB) against GPR, (2) the heterogeneous performance of regional GB markets reminds investors to be cautious when selecting GBs assets, and (3) it encourages reasonable investment allocations on GBs to achieve a balance between profit and risk.
Purpose
We examined the dynamic volatility connectedness and diversification strategies among US real estate investment trusts (REITs) and green finance indices.
Design/methodology/approach
The DCC-GARCH dynamic connectedness framework and he DCC-GARCH t-copula model were employed in this study.
Findings
Using daily data from 2,206 observations spanning from 2 January 2015 to 31 January 2023 this paper presents the following findings: (1) cross-market spillovers exhibited a high correlation and significant fluctuations, particularly during extreme events; (2) our analysis confirmed that REIT acted as net receivers from other green indices, with the S&P North America Large-MidCap Carbon Efficient Index dominating the in-network volatility spillover; (3) this observation suggests asymmetric spillovers between the two markets and (4) a portfolio analysis was conducted using the DCC-GARCH t-copula framework to estimate hedging ratios and portfolio weights for these indices. When REIT and the Dow Jones US Select ESG REIT Index were simultaneously added to a risk-hedged portfolio, our findings indicated that no risk-hedging effect could be achieved. Moreover, the cost and performance of hedging green assets using REIT were found to be comparable.
Originality/value
We first examined the dynamic volatility connectedness and diversification strategies among US REITs and green finance indices. The outcomes of this study carry practical implications for market participants.
This study analyzes the inter-dependence of the oil, gold, Bitcoin (BTC), and Gulf Cooperation Council stock markets during the recent Russia–Ukraine and Israel–Palestine conflicts. The study found that these markets were less inter-connected during oil battles and the Russia–Ukraine conflict but more inter-connected during the COVID-19 crisis. Findings indicated that Oman, Kuwait, gold, and Qatar are the most significant spillover receivers, whereas the United Arab Emirates (UAE), Kingdom of Saudi Arabia, and West Texas Intermediate are the primary risk spillover transmitters in the Israel–Palestine conflict. Additionally, BTC and the UAE are significant transmitters, whereas Kuwait and Qatar are the highest-risk spillover receivers in the Russia–Ukraine war. Portfolio estimates revealed that gold, BTC, and/or oil are useful in various equity markets for portfolio diversification and hedging under different market conditions and time horizons. These data can guide managers in portfolio construction and risk diversification.
Purpose
The purpose of this paper is to scrutinize the safe haven benefits of 13 individual commodities for the USA and Chinese equity sectors during the financial turmoil period. Therefore, sectoral investors in the USA and China could invest in those specific commodities that provide stable returns during the health crisis and financial turmoil periods.
Design/methodology/approach
The daily data spans from February 1, 2015, to July 28, 2022. The present study applies several different approaches to analyzing the data set. The author apply the cross-quantilogram (C.Q) methodology to capture the lead-lag bivariate quantile interdependence between two stationary time series variables during the bearish, bullish and normal periods. Then the study used the hedging effectiveness (HE) and conditional diversification benefits (CDB) approaches to capture the hedging and diversification benefits of commodity classes and individual commodities.
Findings
The noteworthy findings of the quantilogram methodology reveal that livestock and agriculture commodities serve as better refuges as compared to the precious metals and energy index in both countries. On average, precious metals failed to serve as safe haven investments for the USA and Chinese equity market sectors. All energy commodities except soybean oil had strong comovements with China and the US equity sectors during bearish, bullish and normal periods. Lean hogs, fiddler cattle and live cattle are perfect hedging assets for both countries due to the presence of blue color at normal and bullish periods in all C.Q heat-maps. The HE table depicts that commodity indices and individual commodities failed to serve as hedging assets for the Chinese equity sectors. But commodities are semistrong hedging assets for the US equity sectors and the S&P 500 due to the average HE values being 0.7 and above. The CDB values depict that precious metals provide diversification benefits in both equity markets.
Practical implications
The present study results have important implications for equity sector investors of the USA and China in suggesting particular commodity during the financial turmoil period. During the bearish market condition, risk averse equity sector investors can invest in livestock commodities and agriculture commodities, due to their relatively stable returns. In addition, policymakers can use the analysis insights to formulate policy tools and monitoring mechanisms, effectively mitigating the unfavorable effects arising from asymmetric dependence between commodities and equity sectors during the upper tail, middle and lower tail. Policymakers can suggest equity investors to invest in which commodity during extreme conditions.
Originality/value
The current study has the following points of originality. First, to the best of the author’s knowledge, this is the first study to investigate the individual commodities’ roles as safe havens taken from all four major commodity classes. More importantly, it is also noticeable that the safe haven abilities of commodities are usually tested for the stock market, but the equity sectors are ignored. Therefore, the present study used both stock market and sectoral indices data.
We examine the pricing difference of Green Bonds (GB) and conventional bonds (CBs) in capital markets worldwide. Credit spread is used to observe whether investors would like to pay a premium for GBs over CBs. This study uses panel data regression with hybrid model to analyse daily observations over the period 2016 to 2017. We employ Option-Adjusted spread (OAS) to measure the credit spreads of bonds while controlling for bond specific, macroeconomic and global factors that influence the spread. With the hybrid model used in the panel data analysis, we were able to capture the fixed-effects of variables in a random effect model. We find that GBs are traded at a premium of 63 basis points (BPS), compared with a comparable corporate bond issue. We find that the green label provides issuers an incentive to raise funds through issuing GBs while providing investors an opportunity to diversify their investments returns. Our findings provide several implications to the major stakeholders driving the GB market to scale up the market to finance the required level of global green investment needs. We stress an urgent need to support the growth of the GB market to achieve sustainable development through mitigating climate change challenges.
Abbreviation GB: Green Bond; CB: Conventional Bond; YS: Yield Spread; BPS: Basis Points; OAS: Option-Adjusted Spread; PCSE: Panels Corrected Standard Errors; CPI: Consumer Price Index; GBPs: Green Bond Principles; CBS: Climate Bond Standard
This paper examines the potential of green bonds in mobilizing adaptation and mitigation finance for developing countries. Building upon a theoretical approach, it identifies the key drivers of the green bond market over the last few years and the barriers that impede its appropriation by developing countries. The results suggest that the rise of green bonds is a fact in developed and emerging countries, backed by an increasing climate-awareness from investors. However, in developing countries, the market remains incipient, and its full potential seems to be underappreciated. The lack of appropriate institutional arrangements for green bond management, the issue of minimum size, and high transactions costs associated with green bond issuance, are the key barriers to the development of green bonds in developing countries. In order to cope with these challenges, this paper suggests an efficient use of multilateral and national development banks as intermediary institutions for local green bond management. Furthermore, local governments are required to provide local green bond issuers with guarantees aimed at covering the transaction costs associated with green bond issuance.
Many scientists have made use of the wavelet method in analyzing time series, often using popular free software. However, at present there are no similar easy to use wavelet packages for analyzing two time series together. We discuss the cross wavelet transform and wavelet coherence for examining relationships in time frequency space between two time series. We demonstrate how phase angle statistics can be used to gain confidence in causal relationships and test mechanistic models of physical relationships between the time series. As an example of typical data where such analyses have proven useful, we apply the methods to the Arctic Oscillation index and the Baltic maximum sea ice extent record. Monte Carlo methods are used to assess the statistical significance against red noise backgrounds. A software package has been developed that allows users to perform the cross wavelet transform and wavelet coherence ( www.pol.ac.uk/home/research/waveletcoherence/ ).
This paper is the first empirical study of the link between investor attention and the green bond market performance. Using daily data of investor attention and green bond indexes, we find that investor attention can influence green bond returns and volatility, however, this relationship is time varying. Our results are relevant for investors as they shed light into the newly developed and fast growing green bond market. Our findings also emphasize the importance of appropriate information and attention for directing financial flows towards sustainable investment.
This study examines the impact of financial inclusion on CO2 emissions using a sample of 31 Asian countries during the period 2004–2014. Three composite indicators for financial inclusion are constructed using principal component analysis (PCA) based on normalized variables. To estimate the model, we adopted the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors for linear panel models that are not only heteroskedasticity consistent but also robust to general forms of cross-sectional dependence. We find that income, energy consumption, industrialization, urbanization, FDI and financial inclusion appear to have led to higher emissions of CO2 in the region. Meanwhile, increased openness to trade seems to have reduced CO2 emissions. The findings are qualitatively robust to different proxies of financial inclusions and reasonable modifications to specification of the model. The empirical results imply that there are currently no policy synergies between growing financial inclusion and mitigating CO2 emissions. Thus, financial inclusion should be integrated into climate change adaptation strategies at local, national and regional levels, especially to address the side effect of higher CO2 emissions associated with improved financial inclusion.
We investigate whether the global financial crisis (GFC) changed the tail and frequency interdependence between BRICS stock markets and two strategic commodities (oil and gold). To that end, we employ two novel approaches namely the quantile on quantile (QQR) regression and the quantile coherency (QC). The QQR approach reveals that while the positive lower tail interdependence between gold and BRICS equity markets strengthens after GFC. The lower tail interdependence of oil and BRICS equity returns shift from neutral to positive with the incidence of the GFC. The QC approach also shows no interdependence between oil (gold) and most of the BRICS equity market over the short-term horizon in the pre-GFC era However, with the occurrence of the GFC, the interdependence shift to moderately positive across all the returns quantiles with some exceptions of negative interdependence in extremely divergent return quantiles. Similarly, in the long-term, already positive interdependence of the pre-GFC period in parallel returns quantiles of oil (gold) further strengthen with the incidence of the GFC. Our findings provide useful insights to the investor who operate at different time horizons amid various market conditions.
We identify network connectedness between green bonds and different asset classes over different investment horizons in the EU and US asset markets. We first focus on dynamic correlations between green bond and asset class price changes in different time scales on the basis of wavelet coherence. We then identify network connectedness by decomposing time series into different frequency components, in each of which we evaluate connectedness on the basis of the error variance decomposition of a multivariate vector autoregressive model. Our empirical evidence reveals strong connectedness between green bonds and treasury and corporate bonds in the short and long run and in both the EU and the USA, with green bonds receiving sizeable spillovers from treasury and corporate bond prices and transmitting negligible effects. Likewise, we find that green bonds are weakly connected with high-yield corporate bond, stock and energy assets over different time scales. These findings have implications for green bond investors regarding portfolio design and hedging decisions, and for the channelling of financial flows to economic activities that are consistent with a decarbonized economy.
We study time and frequency connectedness among 22 commodity uncertainty indexes. Applying spillover analysis and network graphs, we find that overall connectedness among commodity uncertainties increase during the global financial crisis (GFC) and the oil price collapse of 2014–16. Network analysis shows more spillover within a specific commodity class and that precious metals due to less spillover with other commodities may serve as safe-haven during the crisis. The decomposition of spillover index reveals that commodity markets are more connected in long-run. Implications of findings are discussed.
Establishment of green credit guarantee schemes (GCGSs)and returning a portion of the tax revenue originally generated from spillover effect of green energy supply to investors. It can reduce the risk of green finance and increase the rate of return of green energy projects, respectively. In addition, technical developments in the sphere of distributed ledger technologies provide the opportunity to increase the transparency in green finance and investments. This paper contributes to literature by proposing two applied frameworks, backed by theoretical models on green finance and investment based on projects size. The objective is to induce the private participation in green finance and investment.
We examine the determinants of correlation patterns between green and black bond markets. Both the correlations and determinants are time-varying and estimated using a two-stage sequential methodology, extracting dynamic conditional correlations (DCC) in the first, then applying dynamic model averaging (DMA) in the second to establish the determinants of market correlations. We provide evidence that the connection between green and black bonds is sensitive to: changes in financial market volatility; economic policy uncertainty; daily economic activity; oil prices and; uniquely constructed measures of positive and negative news-based sentiment towards green bonds.
The green bond market has been growing rapidly worldwide since its debut in 2007. We present the first empirical study on the announcement returns and real effects of green bond issuance by firms in 28 countries during 2007–2017. After compiling a comprehensive international green bond dataset, we document that stock prices positively respond to green bond issuance. However, we do not find a consistently significant premium for green bonds, suggesting that the positive stock returns around green bond announcements are not fully driven by the lower cost of debt. Nevertheless, we show that institutional ownership, especially from domestic institutions, increases after the firm issues green bonds. Moreover, stock liquidity significantly improves upon the issuance of green bonds. Overall, our findings suggest that the firm's issuance of green bonds is beneficial to its existing shareholders.
We examine co-movement between the green bond and financial markets, finding that the green bond market couples with corporate and treasury bond markets and weakly co-moves with stock and energy commodity markets. We also find that green bonds have negligible diversification benefits for investors in corporate and treasury markets, whereas diversification benefits are sizeable for investors in stock and energy markets. We further confirm that green bonds are affected by substantial price spillovers from corporate and treasury fixed-income markets and that large price swings in stock and energy markets have a negligible impact on green bond prices.
While there is a large literature on both diversification and contagion issues across global listed real estate markets, there is only a limited amount of research on the drivers of correlation dynamics. Using both local and U.S. dollar denominated returns, I model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results show that financial factors, such as the relation with the respective equity market, volatility, the relative size of the real estate sector, and trading turnover all play an important role in the degree of comovement present. Furthermore, the results highlight the importance of macroeconomic variables in the relations observed. The results also highlight key differences when considering the correlation dynamics across listed real estate markets or with the global stock market.
Since its inception in 2007, the green bond market has experienced a compound growth rate of 50% annually. In 2014, green bond issuance totaled USD 36.6 billion, more than threefold its previous year's level of USD 11 billion. This new market is a response to the growing demand of investors for financial investments that are beneficial both environmentally and economically. As the green bond market continues to grow, it is important to obtain a better understanding of the risk and return behavior of the market. This paper is the first to analyze the volatility behavior of the green bond market using data on daily closing prices of the S&P green bond indices between April 2010 and April 2015. Building on a multivariate GARCH framework, my empirical results show that the ‘labeled’ segment of the green bond market experiences large volatility clustering while the pattern of volatility clustering is weaker in the ‘unlabeled’ segment of the market. I also found that a shock in the overall conventional bond market tends to spill over into the green bond market, where this spillover effect is variable over time. These results are meaningful insights into this new, yet very promising market, therefore, have important implications for asset pricing, portfolio management and risk management.
The global financial crisis has again brought the interdependencies of international financial markets to the fore, particularly during times of financial crises. This paper explores the relative roles of news and volatility in explaining the changes in correlations between national stock markets during the global financial crisis. Our results show that the majority of the correlations are more strongly explained by volatility rather than news. However as the global financial crisis evolves the relative role of news grows in importance.
We study bi-variate conditional volatility and correlation dynamics for individual commodity futures and financial assets from May 1990-July 2009 using DSTCC-GARCH (Silvennoinen and Terasvirta 2009). These models allow correlation to vary smoothly between extreme states via transition functions driven by indicators of market conditions. Expected stock volatility and money manager open interest in futures markets are relevant transition variables. Results point to increasing integration between commodities and financial markets. Higher commodity returns volatility is predicted by lower interest rates and corporate bond spreads, US dollar depreciations, higher expected stock volatility and financial traders open positions. We observe higher and more variable correlations between commodity futures and financial asset returns, particularly from mid-sample, often predicted by higher expected stock volatility. For many pairings, we observe a structural break in the conditional correlation processes from the late 1990s.
Green Bonds Global State of the Market
Climate Bonds Initiative. (2020a). Green Bonds Global State of the Market 2019. Retrieved from https://www.climatebonds.net/files/reports/cbi_sotm_2019_vol1_04c_
0.pdf.
2019 Green Bond Market Summary
Climate Bonds Initiative. (2020b). 2019 Green Bond Market Summary. Retrieved from https://www.climatebonds.net/resources/reports/2019-green-bond-marketsummary.
Green bonds and cumulative abnormal return implications for corporations around green bond announcements
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Lautsi, M. (2019). Green bonds and cumulative abnormal return implications for corporations around green bond announcements.
Mathematical background for wavelet estimators of crosscovariance and cross-correlation
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Mathematical background for wavelet estimators of crosscovariance and cross-correlation
- Whitcher