The European Central Bank and green finance: How would the green quantitative easing affect the investors' behavior during times of crisis?

Donia Aloui, Ramzi Benkraiem, Khaled Guesmi and Samuel Vigne

International Review of Financial Analysis, 2023, vol. 85, issue C

Abstract: In July 2021, the European central bank (ECB) announced the application of new environmental criteria to purchase private assets as part of its Quantitative Easing (QE) program. Using a Bayesian VAR model with time varying parameters and stochastic volatility (TVP-BVAR-SV), we investigate the transmission of Green bond shocks to the stock market during the pre-and-post COVID-19 pandemic. We document a nonlinear relation between the green bonds and the green equities. Our findings suggest that the ECB's Green QE can drive investors towards green investment in the stock market through the green bond market during the non-crisis period. However, we show that the proper transmission of Green QE shocks to the stock market depends on the economic conditions and could not be effective during the crisis period. Our results also support previous findings that state the growing demand for sustainable investing after COVID-19. These findings have important implications for investment professionals, policymakers, and environmentally concerned actors.

Keywords: COVID-19; ECB; Green quantitative easing; Green investment; ESG; TVP-BVAR-SV model; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: E44 E52 G11 G12 Q57 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:85:y:2023:i:c:s1057521922004148

DOI: 10.1016/j.irfa.2022.102464

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