Analyzing the static and dynamic dependence among green investments, carbon markets, financial markets and commodity markets

Emmanuel Joel Aikins Abakah, Aviral Tiwari, Johnson Ayobami Oliyide and Kingsley Opoku Appiah

International Journal of Managerial Finance, 2023, vol. 21, issue 1, 286-327

Abstract: Purpose - This paper investigates the static and dynamic directional return spillovers and dependence among green investments, carbon markets, financial markets and commodity markets from January 2013 to September 2020. Design/methodology/approach - This study employed both the quantile vector autoregression (QVAR) and time-varying parameter VAR (TVP-VAR) technique to examine the magnitude of static and dynamic directional spillovers and dependence of markets. Findings - Results show that the magnitude of connectedness is extremely higher at quantile levels (q = 0.05 and q = 0.95) compared to those in the mean of the conditional distribution. This connotes that connectedness between green bonds and other assets increases with shock size for both negative and positive shocks. This further indicates that return shocks spread at a higher magnitude during extreme market conditions relative to normal periods. Additional analyses show the behavior of return transmission between green bond and other assets is asymmetric. Practical implications - The findings of this study offer significant implications for portfolio investors, policymakers, regulatory authorities and investment community in terms of carefully assessing the unique characteristics offered by each markets in terms of return spillovers and dependence and diversifying the portfolios. Originality/value - The study, first, uses a relatively new statistical technique, the QVAR advanced by Andoet al.(2018), to capture upper and lower tails’ quantile price connectedness and directional spillover. Therefore, the results possess adequate power against departure from mean-based conditional connectedness. Second, using a portfolio of green investments, carbon markets, financial markets and commodity markets, the uniqueness of this study lies in the examination of the static and dynamic dependence of the markets examined.

Keywords: Green bond; Stocks; Carbon price; Clean energy; Quantile connectedness; Spillover; G11; G19; G32; C59 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-09-2021-0428

DOI: 10.1108/IJMF-09-2021-0428

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