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Does uncertainty affect the relationship between green bond and carbon markets?

Author

Listed:
  • Kim, BuKwon
  • Dong, Xiyong
  • Yoon, Seong-Min

Abstract

Sustainable financing and regulations to achieve carbon neutrality are important global issues for achieving the Sustainable Development Goals. This study investigates the effects of various global uncertainties on the relationship between green bonds and carbon markets using GARCH-MIDAS-X and DCC-MIDAS-X models. We find that temporary shock-related uncertainty, such as infectious disease risk or geopolitical risk, weakens this relationship, whereas policy-related uncertainty, including uncertainty in climate, economics, and monetary policy, strengthens it. These findings highlight the complex dynamics between sustainable finance mechanisms and the importance of managing uncertainty to facilitate a gradual transition to a sustainable economy.

Suggested Citation

  • Kim, BuKwon & Dong, Xiyong & Yoon, Seong-Min, 2024. "Does uncertainty affect the relationship between green bond and carbon markets?," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013990
    DOI: 10.1016/j.frl.2024.106370
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    More about this item

    Keywords

    Sustainable finance; Green bond; Carbon market; Uncertainty; DCC-MIDAS-X model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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