Examining time–frequency quantile dependence between green bond and green equity markets

Md. Bokhtiar Hasan, Gazi Uddin, Md. Sumon Ali (), Md. Mamunur Rashid (), Donghyun Park and Sang Hoon Kang ()
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Md. Sumon Ali: Islamic University
Md. Mamunur Rashid: Islamic University
Sang Hoon Kang: Pusan National University

Financial Innovation, 2024, vol. 10, issue 1, 1-28

Abstract: Abstract In the context of the rapidly growing demand for green investments and the need to combat climate change, this study contributes to the emerging literature on green investments by exploring the time–frequency connectedness between green bonds (GBs) and green equities. Specifically, we examine the degree of connection between GBs and green equities, the extent to which these markets influence each other, and which one is the primary net transmitter versus the net receiver of shocks under diverse market conditions. To accomplish these objectives, we use the wavelet-based Quantile-on-Quantile (QQ), dynamic conditional correlation (DCC), portfolio implications, and Quantile VAR approaches. The results show that GBs and green equities have a strong positive connection, depending on time and frequency domains. However, a negative association between GBs and green equities is observed during periods of crisis, highlighting GBs’ ability to hedge green equity portfolios. The portfolio strategies demonstrate that investors require to invest in the Green Economy equity and S&P GB portfolio to reach the highest level of hedging effectiveness. The findings further imply that the Global Water Equity Index transmits the highest spillover to other green assets, while the Green Economy Equity Index receives the most spillover from other assets. The pairwise volatility connectivity reveals that most pairs have minimal quantile dependence, indicating the potential for diversification across the GB and green equity pairs. These findings have significant implications for investors and policymakers concerned with green investments and climate change mitigation.

Keywords: Green bond; Green equity; Frequency connectedness; Quantile dependency; Diversification (search for similar items in EconPapers)
JEL-codes: C58 G12 G15 Q01 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1186/s40854-024-00641-3

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