The Impact of Financial Stress and Uncertainty on Green and Conventional Bonds and Stocks: A Nonlinear and Nonparametric Quantile Analysis

Muhammad Mar’I, Mehdi Seraj () and Turgut Türsoy
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Muhammad Mar’I: Department of Banking and Finance, Near East University, Nicosia 99138, Cyprus
Mehdi Seraj: Department of Economics, Near East University, Nicosia 99138, Cyprus

Risks, 2024, vol. 12, issue 8, 1-18

Abstract: This study aims to investigate the impact of financial stress and uncertainty on the returns of green and conventional bonds and stocks in the United States from 2010 to 2022. The research utilizes nonlinear and nonparametric analysis, which includes the quantile-on-quantile and nonparametric causality-in-quantiles approaches to examine the relationship between variables. The data analyzed using R programming language show that financial stress positively impacts the middle quantiles of both conventional and green equity, while financial uncertainty negatively impacts upper quantiles. The study also finds that financial stress has a more significant impact on all types of bonds compared to financial uncertainty, with conventional bonds being more affected. This study proposes a pyramid that classifies financial assets based on their susceptibility to financial stress, which could help investors evaluate risk levels and make better investment decisions. The study recommends that policymakers should encourage green investments by offering incentives, such as tax credits. They should also focus on enhancing the efficiency of volatile assets by implementing new investment rules and regulations.

Keywords: green investments; financial stress; quantile-on-quantile; nonparametric causality-in-quantiles; modern portfolio theory (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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