Interactions between sustainable bonds, renewable energy and other financial markets: A macroprudential perspective

Lisa Sheenan, Koen Schweers and Tony Klein

Energy Economics, 2024, vol. 138, issue C

Abstract: We analyse linkages between sustainable bond markets and a number of key financial markets in Europe, namely corporate bond, sovereign bond, renewable energy, equity and volatility markets. We apply a novel empirical approach using zero-volatility spreads (z-spreads) as a measure of relative bond performance to adjust for the sensitivity of bond prices to changes in interest rates. We model these linkages using a Markov-switching vector autoregressive model and static and dynamic copulas that enable us to test for contagion with conditional value-at-risk measures. We find evidence of bi-directional contagion between the sustainability-linked bond and green bond markets along with contagion between other fixed-income markets and the sustainable bond market. Our results indicate possible diversification benefits that green bonds or sustainability-linked bonds may provide to investors active in the key markets analysed.

Keywords: Sustainable bonds; Connectedness; Contagion risk; Markov-switching VAR; Green bonds; Sustainability-linked bonds (search for similar items in EconPapers)
JEL-codes: G11 G12 Q50 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:138:y:2024:i:c:s0140988324005474

DOI: 10.1016/j.eneco.2024.107839

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