Green Bond Returns and the Dynamics of Green and Conventional Financial Markets: An Analysis Using a Thick Pen

Marc Gronwald and Sania Wadud

No 11773, CESifo Working Paper Series from CESifo

Abstract: This paper explores the relationship between green bond markets and both green and conventional financial markets, while also evaluating their effectiveness as a climate finance instrument. Using the Thick Pen Measure of Association — a visually interpretable tool for analysing co-movement across different time scales — we identify several key findings. First, the relationship between green bonds and other markets evolves over time, influenced by major events such as COVID-19, the Ukraine war, and earlier structural changes. Second, green bonds show the strongest co-movement with benchmark bond markets, indicating they are driven by similar fundamental factors. In contrast, their connection to stock markets is weaker and, in some cases, declining, reinforcing their potential as a diversification tool. However, short-term movements in the green bond market remain closely linked to the long-term stock market environment, particularly during periods of market stress.

Keywords: green bonds; financial markets; co-movement; Thick Pen Measure of Association; data science (search for similar items in EconPapers)
JEL-codes: C14 C32 C46 G12 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11773

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