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The Impact of the COVID-19 Pandemic on the Connectedness between Green Industries and Financial Markets in China: Evidence from Time-Frequency Domain with Portfolio Implications

Author

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  • Jing Deng

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Jingxuan Lu

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Yujie Zheng

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Xiaoyun Xing

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Cheng Liu

    (Research Centre for the Two Mountains Theory and Sustainable Development, Beijing Forestry University, Beijing 100083, China)

  • Tao Qin

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

Abstract

To achieve sustainable economic growth, a significant amount of private capital must be invested in green industries. However, risk management in the green industry stock market has drawn much attention recently due to the uncertainty and high risk present in this market. By applying the spillover index model of Diebold and Yilmaz, the frequency-domain spillover approach developed by Baruník and Křehlík, and the dynamic conditional correlation (DCC) model, this paper focuses mainly on the heterogeneity of the volatility spillovers among six green industry equities and other financial assets in China, under various market economy situations. Based on the empirical results obtained in this paper, we find that the green industry stock markets have the least impact on the gold and energy futures markets. Additionally, based on asymmetric analyses, it can be concluded that the green bond market has experienced the smallest shocks from the six green industry stock markets. By utilizing frequency-domain analyses, the energy futures market experiences the least amount of volatility from green stocks. Additionally, the COVID-19 pandemic affects the interconnectedness of markets. Prior to the COVID-19 pandemic, energy futures were the most suitable portfolio instrument for green industry stocks. When the COVID-19 pandemic occurred, however, gold proved to be the most advantageous portfolio asset. The research findings of this paper demonstrate the impact of COVID-19 on the selection of the best investment instruments for green industry stocks, which is beneficial for reducing the investment risk of green financial market participants and increasing the demand for green stock markets, while also providing practical advice for environmentally conscious investors and policymakers.

Suggested Citation

  • Jing Deng & Jingxuan Lu & Yujie Zheng & Xiaoyun Xing & Cheng Liu & Tao Qin, 2022. "The Impact of the COVID-19 Pandemic on the Connectedness between Green Industries and Financial Markets in China: Evidence from Time-Frequency Domain with Portfolio Implications," Sustainability, MDPI, vol. 14(20), pages 1-24, October.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:20:p:13178-:d:941814
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    1. Jiang, Wei & Dong, Lingfei & Liu, Xinyi, 2023. "How does COVID-19 affect the spillover effects of green finance, carbon markets, and renewable/non-renewable energy markets? Evidence from China," Energy, Elsevier, vol. 281(C).
    2. Bouteska, Ahmed & Ha, Le Thanh & Bhuiyan, Faruk & Sharif, Taimur & Abedin, Mohammad Zoynul, 2024. "Contagion between investor sentiment and green bonds in China during the global uncertainties," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 469-484.
    3. Xia, Yufei & Shi, Zhengxu & Du, Xiaoying & Niu, Mengyi & Cai, Rongjiang, 2023. "Can green assets hedge against economic policy uncertainty? Evidence from China with portfolio implications," Finance Research Letters, Elsevier, vol. 55(PA).
    4. 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).

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