Network connectedness of green bonds and asset classes

Juan Reboredo, Andrea Ugolini and Fernando Antonio Aiube ()

Energy Economics, 2020, vol. 86, issue C

Abstract: 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.

Keywords: Green bonds; Connectedness; Wavelets; Financial assets (search for similar items in EconPapers)
JEL-codes: C58 G12 G15 Q50 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (130)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:86:y:2020:i:c:s0140988319304268

DOI: 10.1016/j.eneco.2019.104629

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