Does uncertainty affect the relationship between green bond and carbon markets?

BuKwon Kim, Xiyong Dong and Seong-Min Yoon

Finance Research Letters, 2024, vol. 70, issue C

Abstract: Sustainable financing and regulations to achieve carbon neutrality are important global issues for achieving the Sustainable Development Goals. This study investigates the effects of various global uncertainties on the relationship between green bonds and carbon markets using GARCH-MIDAS-X and DCC-MIDAS-X models. We find that temporary shock-related uncertainty, such as infectious disease risk or geopolitical risk, weakens this relationship, whereas policy-related uncertainty, including uncertainty in climate, economics, and monetary policy, strengthens it. These findings highlight the complex dynamics between sustainable finance mechanisms and the importance of managing uncertainty to facilitate a gradual transition to a sustainable economy.

Keywords: Sustainable finance; Green bond; Carbon market; Uncertainty; DCC-MIDAS-X model (search for similar items in EconPapers)
JEL-codes: C58 G11 Q43 Q54 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013990

DOI: 10.1016/j.frl.2024.106370

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