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Extreme Connectedness between Green Bonds, Government Bonds, Corporate Bonds and Other Asset Classes: Insights for Portfolio Investors

Author

Listed:
  • Emmanuel Joel Aikins Abakah

    (Business School, University of Ghana, GPS GA, LG 78 Legon, Accra P.O. Box 490-9425, Ghana)

  • Aviral Kumar Tiwari

    (Indian Institute of Management Bodh Gaya Bodh Gaya, Gaya 824234, India)

  • Aarzoo Sharma

    (Department of Commerce and Management Studies, CCS University, Meerut 250001, India)

  • Dorika Jeremiah Mwamtambulo

    (The University of Dodoma, Dodoma, Tanzania)

Abstract

This paper aims to examine the connectedness between green and conventional assets, particularly during the period of economic downturn. Specifically, we examine quantile-based time-varying connectedness between the green bond market and other financial assets using quantile vector autoregression (QVAR) from 9 March 2018 to 10 March 2021. We use daily prices of S&P U.S. Treasury Bond Index, S&P US Aggregate Bond Index, S&P US Treasury Bond Current 10Y Index, S&P 500 Bond Index, S&P 500 Financials index, S&P 500 Energy Bond Index and S&P 500, giving a total of 784 observations, and using Composite Index as a representative of conventional assets classes and S&P Green Bond Index to denote the green bond market. Results shows the connectedness between green bonds and the conventional asset classes intensified during the outbreak of the Coronavirus pandemic (COVID-19) as investors shifted their investment towards fixed income assets due to the plunge in the prices of stocks and commodities. The results also shows that green bonds are strongly connected with treasury bonds, aggregate bonds and bond index, as they share similarities with respect to issuance, risk and governance. Connectedness is weak in the case of composite index and energy bond index, as their prices do not have substantial influence on the green bond market. The study highlights the hedging and diversification benefits of green bonds. We have several implications for portfolio managers, policy makers and researchers.

Suggested Citation

  • Emmanuel Joel Aikins Abakah & Aviral Kumar Tiwari & Aarzoo Sharma & Dorika Jeremiah Mwamtambulo, 2022. "Extreme Connectedness between Green Bonds, Government Bonds, Corporate Bonds and Other Asset Classes: Insights for Portfolio Investors," JRFM, MDPI, vol. 15(10), pages 1-17, October.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:10:p:477-:d:946341
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    References listed on IDEAS

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    2. Khalfaoui, Rabeh & Mefteh-Wali, Salma & Dogan, Buhari & Ghosh, Sudeshna, 2023. "Extreme spillover effect of COVID-19 pandemic-related news and cryptocurrencies on green bond markets: A quantile connectedness analysis," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. 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).
    4. Kocaarslan, Baris & Mushtaq, Rizwan, 2024. "The impact of liquidity conditions on the time-varying link between U.S. municipal green bonds and major risky markets during the COVID-19 crisis: A machine learning approach," Energy Policy, Elsevier, vol. 184(C).
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    6. Xu, Danyang & Hu, Yang & Corbet, Shaen & Lang, Chunlin, 2024. "Return connectedness of green bonds and financial investment channels in China: Implications for hedging and regulation," Research in International Business and Finance, Elsevier, vol. 70(PA).

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