How connected are green bonds to green assets and non-green assets?

Nana Liu, Hairong Wang, Jun Chu, Rongjiang Cai and Yaqin Dou

Journal of Environmental Planning and Management, 2025, vol. 68, issue 9, 2264-2296

Abstract: The growing concern surrounding climate change has piqued interest in incorporating green bonds (GBs) into investment portfolios. This article integrates green and non-green assets into one framework, creating a two-way feedback mechanism. Using a modified error variance decomposition and network diagrams, we quantitatively and systematically analyze the connections between the green bond market and various other market information at different time frequencies. Furthermore, we investigated the spillover values in extreme conditions using quantile connectivity methods. Our findings reveal that: (i) GBs exhibit a stronger correlation with traditional fixed-income markets than green assets, (ii) short-term spillover effects are the most pronounced, followed by medium- and long-term effects, (iii) changes in the spillover index appear to stem from significant economic events, indicating heightened market correlation during financial turbulence, and (iv) uncertainty contributes more significantly to systemic spillovers than financial factors, albeit with variations across different frequencies, (v) GB shows its potential as a safe asset in extreme downturns and normal market conditions. These results have significant economic implications for investors, portfolio managers, and policymakers.

Date: 2025
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DOI: 10.1080/09640568.2024.2312543

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