The relationship between green bonds and conventional financial markets: Evidence from quantile-on-quantile and quantile coherence approaches

Yonghong Jiang, Jieru Wang, Zhiming Ao and Yujou Wang

Economic Modelling, 2022, vol. 116, issue C

Abstract: Financial markets evolve continuously and become increasingly complex with the steady stream of financial innovations, among which recent emergence of green bonds breathes life into and poses challenges on conventional financial markets. Relevant studies rarely consider market conditions and time frequencies, and fail to cover the 2020 market recession. We examine their relationships at various quantiles and frequencies with novel quantile-based approaches using daily data of five representative markets involving the period of the COVID-19 pandemic. Our results reveal positive dependence of green bonds on fixed-income markets, indicating the diversifier role of green bonds, being most effective at the extreme lower quantiles of the treasury market and green bonds, which raises concern about their price transmission especially in recession. Hedging properties of green bonds for currency and stock markets are strongest in the medium term. In addition, we conduct the portfolio analysis, verifying hedging and diversification benefits of green bonds.

Keywords: Green bonds; Financial markets; Quantile-on-quantile; Quantile coherency (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:116:y:2022:i:c:s0264999322002759

DOI: 10.1016/j.econmod.2022.106038

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