Connectedness between green bonds, clean energy markets and carbon quota prices: Time and frequency dynamics

Ingrid Emilie Flessum Ringstad and Kyriaki Tselika

Journal of Commodity Markets, 2024, vol. 36, issue C

Abstract: In this paper, we investigate the time and frequency dynamics of connectedness among green assets such as green bonds, clean energy markets, and carbon prices. Using daily price data, we explore return spillovers across these green financial markets by applying the novel framework on time and frequency dynamics proposed by Baruník and Krehlík (2018). This allows us to identify the direction of spillovers among our variables, and decompose the connectedness to differentiate between short-term and long-term return spillovers. Our results indicate that green bonds and carbon prices act as net receivers of shocks, but mainly in the short-term. We also observe a low level of connectedness among our clean energy markets across both low and high frequency bands, even during times of economic or political crisis. Additionally, there are periods in which connectedness between the clean energy assets is driven by the long-term. In periods of economic and political stability, carbon prices may also provide an interesting diversifying tool for short-term investors. Our results should be of interest for investors and portfolio managers who focus on green financial markets, by strengthening the notion that green financial markets can offer diversification opportunities, for both short-term and long-term investors. Policy makers could also benefit from our insights on conectedness in their work on short-term and long-term climate policies. This paper is the first to use this framework to investigate systematic risks within green financial markets.

Keywords: Green finance; Green bonds; Energy markets; Connectedness; Carbon markets; Time–frequency space (search for similar items in EconPapers)
JEL-codes: C52 G11 Q40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:36:y:2024:i:c:s2405851324000618

DOI: 10.1016/j.jcomm.2024.100442

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