Do Green Bonds Act as a Hedge or a Safe Haven against Economic Policy Uncertainty? Evidence from the USA and China

Inzamam Ul Haq, Supat Chupradit and Chunhui Huo
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Inzamam Ul Haq: Department of Management Sciences, Comsats University Islamabad, Islamabad 45550, Pakistan
Supat Chupradit: Department of Occupational Therapy, Faculty of Associated Medical Sciences, Chiang Mai University, Chiang Mai 50200, Thailand
Chunhui Huo: Asia-Australia Business College, Liaoning University, Shenyang 110036, China

IJFS, 2021, vol. 9, issue 3, 1-18

Abstract: Economic policy uncertainty and particularly COVID-19 has stimulated the need to investigate alternative avenues for policy risk management. In this context, this study examines the dynamic association among economic policy uncertainty, green bonds, clean energy stocks, and global rare earth elements. A dynamic conditional correlation-multivariate generalized autoregressive conditional heteroscedasticity (DCC-MGARCH) model was used to gauge the time-varying co-movements among these indices. The analysis finds that green bonds act more as a hedge than a safe haven against economic policy uncertainty (EPU). In the case of diversification, green bonds work as diversifiers with clean energy stocks and rare earth elements during COVID-19 and in the whole sample period. Additionally, clean energy stocks and rare earth elements show safe haven properties against EPUs. This study contributes to the hedging and safe haven literature with some new insight considering the role of green bonds and clean energy stocks. Additionally, the outcomes of the research contribute toward the literature of portfolio diversification theory. These findings pave the way for not only US investors to hedge long-term economic policy risk by investing in green bonds, but also for China and the UK, as these financial assets (green bonds, clean energy stocks, and rare earth metals) and EPU are long-term financial and economic variables.

Keywords: COVID-19; economic policy uncertainty; green bonds; diversifier; hedge; safe haven (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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