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Do geopolitical events transmit opportunity or threat to green markets? Decomposed measures of geopolitical risks

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  • Sohag, Kazi
  • Hammoudeh, Shawkat
  • Elsayed, Ahmed H.
  • Mariev, Oleg
  • Safonova, Yulia

Abstract

The growth of clean energies and technologies requires a sound financial market, while equity and bond markets are exposed to geopolitical risks. We investigate the response of green equity and green bonds to newly develop decomposed measures of geopolitical risks, including geopolitical acts, threats, and narrow and broad measures. To this end, we apply two robust methods; namely, the cross-quantilogram and quantile and quantile (QQ) approaches, to estimate the conditional and unconditional volatility spillovers considering short, medium, and long term. Surprisingly our empirical investigation demonstrates that all measures of geopolitical risk (except geopolitical acts) transmit positive shocks to the green investments (both equity and bonds) from bearish to bullish market states. At the bullish state, green markets respond negatively to the highest quantiles of all measures of geopolitical risks under a long memory. However, the geopolitical acts negatively shock the green bonds and green equity at some extreme quantiles. Our empirical findings are beneficial by transmitting opportunities and preventing risks for investment decision-making in the green markets, considering geopolitical risks.

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  • Sohag, Kazi & Hammoudeh, Shawkat & Elsayed, Ahmed H. & Mariev, Oleg & Safonova, Yulia, 2022. "Do geopolitical events transmit opportunity or threat to green markets? Decomposed measures of geopolitical risks," Energy Economics, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:eneeco:v:111:y:2022:i:c:s0140988322002341
    DOI: 10.1016/j.eneco.2022.106068
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    More about this item

    Keywords

    Green equity; Green bonds; Geopolitical risks; Cross-quantilogram;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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