The impact of climate policy uncertainty on the correlations between green bond and green stock markets

Yaling Chen, Qinnan Jiang, Zhifeng Dai and Yinpeng Liu

International Review of Financial Analysis, 2025, vol. 102, issue C

Abstract: The correlations among financial assets, portfolio construction, and risk management are inseparable. This paper utilizes the DCC-MIDAS model and quantile-on-quantile (QQ) approach to investigate dynamic relationships between green bond and various green stock markets, as well as the influencing factors. Furthermore, we also consider the portfolio diversification and the hedging potential of green bond for green stocks. The results indicate that, firstly, correlations between them are relatively weak and exhibit time-varying characteristics across different time scales. Secondly, incorporating a certain proportion of green bond assets when investing in green stocks can significantly reduce overall risk. However, we observe that in the face of extreme CPU shocks, the green bond does not appear to function as a strong safe-haven asset for green stocks. Finally, CPU exhibits an asymmetric, nonlinear positive impact on their long-term correlations. The findings help provide decision-making support for investors to adjust asset allocations, and assist regulatory agencies in enhancing their ability to identify risks in the green financial market.

Keywords: Climate policy uncertainty; Green bond; Green stock markets; DCC-MIDAS; Quantile-on-quantile approach (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:102:y:2025:i:c:s1057521925001334

DOI: 10.1016/j.irfa.2025.104046

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