Interdependence between Green Financial Instruments and Major Conventional Assets: A Wavelet-Based Network Analysis

Román Ferrer, Rafael Benítez and Vicente J. Bolós
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Román Ferrer: Departamento de Economía Financiera y Actuarial, Facultad de Economía, Universidad de Valencia, Avda. Tarongers s/n, 46022 Valencia, Spain
Rafael Benítez: Departamento de Matemáticas para la Economía y la Empresa, Facultad de Economía, Universidad de Valencia, Avda. Tarongers s/n, 46022 Valencia, Spain
Vicente J. Bolós: Departamento de Matemáticas para la Economía y la Empresa, Facultad de Economía, Universidad de Valencia, Avda. Tarongers s/n, 46022 Valencia, Spain

Mathematics, 2021, vol. 9, issue 8, 1-20

Abstract: This paper examines the interdependence between green financial instruments, represented by green bonds and green stocks, and a set of major conventional assets, such as Treasury, investment-grade and high-yield corporate bonds, general stocks, crude oil, and gold. To that end, a novel wavelet-based network approach that allows for assessing the degree of interconnection between green financial products and traditional asset classes across different investment horizons is applied. The empirical results show that green bonds are tightly linked to Treasury and investment-grade corporate bonds, while green stocks are strongly tied to general stocks, regardless of the specific time period and investment horizon considered. However, despite their common climate-friendly nature, there is no a remarkable association between green bonds and green stocks. This means that these green investments constitute basically two independent asset classes, with a distinct risk-return profile and aimed at a different type of investor. Furthermore, green financial products have a weak connection with high-yield corporate bonds and crude oil. These findings can have important implications for investors and policy makers in terms of investment decision, hedging strategies, and sustainability and energy policies.

Keywords: green bonds; green stocks; conventional bonds; general stocks; wavelet coherence; network analysis (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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