Asymmetric relationship between green bonds and commodities: Evidence from extreme quantile approach

Muhammad Abubakr Naeem, Thi Thu Ha Nguyen, Rabindra Nepal, Thanh Ngo and Taghizadeh–Hesary, Farhad
Authors registered in the RePEc Author Service: Farhad TAGHIZADEH-HESARY ()

Finance Research Letters, 2021, vol. 43, issue C

Abstract: The paper documents the asymmetric relationship between green bonds and commodities via the cross-quantilogram approach. Given the heterogeneity nature of individual commodities, we employ three commodity key groups, including energy, metals, and agriculture. As expected, the empirical evidence highlights the asymmetric behaviors of green bonds in response to diverse groups of commodities. Further, the hedging and diversification benefit of including green bonds to commodity portfolio is revealed. Defined by the uncorrelation or negative correlation with commodities in the periods of high volatility, we found the strongest hedging benefit of green bonds against the fluctuation of natural gas, some industrial metals, and agricultural commodities. While these underlying features are persistent in the long run, it is recommended to utilize the use of green bonds in the longer term (22 days) for higher portfolio performance rather than the short term (1 to 5 days).

Keywords: Green bonds; Commodities; Cross-quantilogram; Diversification (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (67)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000647

DOI: 10.1016/j.frl.2021.101983

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