IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v12y2024i4p83-d1371490.html
   My bibliography  Save this article

Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics

Author

Listed:
  • Tiago Trancoso

    (ProMetheus—Instituto Politécnico de Viana do Castelo, Rua Escola Industrial e Comercial Nun’Álvares, Viana do Castelo 4900-347, Portugal)

  • Sofia Gomes

    (Research on Economics, Management and Information Technologies, REMIT, Portucalense University, Rua Dr. António Bernardino de Almeida 541, 4200-072 Porto, Portugal)

Abstract

This study investigates the impact of green equity indices on global market dynamics using a time-varying parameter vector autoregression (TVP-VAR) model. We uncover a significant shift in the role of the global market, transitioning from a shock transmitter to a shock receiver, as the influence of green finance grows. By directly comparing green equity indices with their corresponding global parent indices, we adopt a global perspective that transcends the limitations of studies focusing on specific regions, such as the USA, China, or Europe. This novel approach minimizes the potential biases in the transmission channels within regional markets, enabling a more comprehensive understanding of the relationship between green finance and global market dynamics. Moreover, by focusing on equity indices we ensure a consistent comparison of financial instruments, avoiding the complexities that arise when comparing different asset classes such as green bonds and conventional equities. For global investors, our results highlight the importance of dynamic and flexible hedging strategies that adapt to the distinct characteristics of green assets and their growing influence on the global market. Risk managers should incorporate these time-varying spillover effects into their models to better assess and mitigate potential risks. Policymakers should consider the growing influence of green finance on the broader market when formulating regulations and incentives to support sustainable investing, as our findings underscore the increasing importance of this sector in shaping market dynamics.

Suggested Citation

  • Tiago Trancoso & Sofia Gomes, 2024. "Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics," Economies, MDPI, vol. 12(4), pages 1-16, April.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:4:p:83-:d:1371490
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/12/4/83/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/12/4/83/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Mokni, Khaled, 2020. "Relationship between green bonds and financial and environmental variables: A novel time-varying causality," Energy Economics, Elsevier, vol. 92(C).
    2. Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Gabauer, David & Dwumfour, Richard Adjei, 2022. "Dynamic spillover effects among green bond, renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies," Global Finance Journal, Elsevier, vol. 51(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Adekoya, Oluwasegun B. & Hammoudeh, Shawkat, 2023. "What do we know about the price spillover between green bonds and Islamic stocks and stock market indices?," Global Finance Journal, Elsevier, vol. 55(C).
    2. Guorong Chen & Shiyi Fang & Qibo Chen & Yun Zhang, 2023. "Risk Spillovers and Network Connectedness between Clean Energy Stocks, Green Bonds, and Other Financial Assets: Evidence from China," Energies, MDPI, vol. 16(20), pages 1-21, October.
    3. Lu, Xunfa & Huang, Nan & Mo, Jianlei & Ye, Zhitao, 2023. "Dynamics of the return and volatility connectedness among green finance markets during the COVID-19 pandemic," Energy Economics, Elsevier, vol. 125(C).
    4. Abakah, Emmanuel Joel Aikins & Wali Ullah, GM & Adekoya, Oluwasegun B. & Osei Bonsu, Christiana & Abdullah, Mohammad, 2023. "Blockchain market and eco-friendly financial assets: Dynamic price correlation, connectedness and spillovers with portfolio implications," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 218-243.
    5. Mesut Doğan & Sutbayeva Raikhan & Nurbossynova Zhanar & Bodaukhan Gulbagda, 2023. "Analysis of Dynamic Connectedness Relationships among Clean Energy, Carbon Emission Allowance, and BIST Indexes," Sustainability, MDPI, vol. 15(7), pages 1-13, March.
    6. Ahmed, Walid M.A. & Sleem, Mohamed A.E., 2023. "Short- and long-run determinants of the price behavior of US clean energy stocks: A dynamic ARDL simulations approach," Energy Economics, Elsevier, vol. 124(C).
    7. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Doğan, Buhari & Ghosh, Sudeshna, 2023. "Sustainable debt and gas markets: A new look using the time-varying wavelet-windowed cross-correlation approach," Energy Economics, Elsevier, vol. 120(C).
    8. Gao, Yang & Zhou, Yueyi & Zhao, Longfeng, 2024. "Quantile interdependence and network connectedness between China's green financial and energy markets," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1148-1177.
    9. Nini Johana Marín-Rodríguez & Juan David González-Ruiz & Alejandro Valencia-Arias, 2023. "Incorporating Green Bonds into Portfolio Investments: Recent Trends and Further Research," Sustainability, MDPI, vol. 15(20), pages 1-32, October.
    10. Mensi, Walid & Rehman, Mobeen Ur & Vo, Xuan Vinh, 2022. "Impacts of COVID-19 outbreak, macroeconomic and financial stress factors on price spillovers among green bond," International Review of Financial Analysis, Elsevier, vol. 81(C).
    11. Sohag, Kazi & Sokolova, Yulia & Vilamová, Šárka & Blueschke, Dmitri, 2023. "Volatility transmission from critical minerals prices to green investments," Resources Policy, Elsevier, vol. 82(C).
    12. Chang, Lei & Moldir, Mukan & Zhang, Yuan & Nazar, Raima, 2023. "Asymmetric impact of green bonds on energy efficiency: Fresh evidence from quantile estimation," Utilities Policy, Elsevier, vol. 80(C).
    13. Dogan, Eyup & Madaleno, Mara & Taskin, Dilvin & Tzeremes, Panayiotis, 2022. "Investigating the spillovers and connectedness between green finance and renewable energy sources," Renewable Energy, Elsevier, vol. 197(C), pages 709-722.
    14. Munir Khamis & Dalal Aassouli, 2023. "The Eligibility of Green Bonds as Safe Haven Assets: A Systematic Review," Sustainability, MDPI, vol. 15(8), pages 1-27, April.
    15. El Khoury, Rim & Alshater, Muneer M. & Li, Yanshuang & Xiong, Xiong, 2024. "Quantile time-frequency connectedness among G7 stock markets and clean energy markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 71-90.
    16. Zhao, Qian & Qin, Chuan & Ding, Longfei & Cheng, Ying-Yue & Vătavu, Sorana, 2023. "Can green bond improve the investment efficiency of renewable energy?," Energy Economics, Elsevier, vol. 127(PB).
    17. Xiao, Xunyong & Li, Aixi & Kchouri, Bilal & Shan, Shan, 2024. "Tracing the dynamic impact of energy transitions on equity market volatility in an era of financial turbulence," Energy Economics, Elsevier, vol. 133(C).
    18. Pham, Son D. & Nguyen, Thao T.T. & Do, Hung X., 2024. "Impact of climate policy uncertainty on return spillover among green assets and portfolio implications," Energy Economics, Elsevier, vol. 134(C).
    19. Wang, Xiong & Li, Jingyao & Ren, Xiaohang, 2022. "Asymmetric causality of economic policy uncertainty and oil volatility index on time-varying nexus of the clean energy, carbon and green bond," International Review of Financial Analysis, Elsevier, vol. 83(C).
    20. Qi, Shaozhou & Pang, Lidong & Qi, Tianbai & Zhang, Xiaoling & Pirtea, Marilen Gabriel, 2024. "The correlation between the green bond market and carbon trading markets under climate change: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 203(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:12:y:2024:i:4:p:83-:d:1371490. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.