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Examining time–frequency quantile dependence between green bond and green equity markets

Author

Listed:
  • Md. Bokhtiar Hasan

    (Islamic University)

  • Gazi Salah Uddin

    (Linköping University)

  • Md. Sumon Ali

    (Islamic University)

  • Md. Mamunur Rashid

    (Islamic University)

  • Donghyun Park

    (Asian Development Bank)

  • Sang Hoon Kang

    (Pusan National University)

Abstract

In the context of the rapidly growing demand for green investments and the need to combat climate change, this study contributes to the emerging literature on green investments by exploring the time–frequency connectedness between green bonds (GBs) and green equities. Specifically, we examine the degree of connection between GBs and green equities, the extent to which these markets influence each other, and which one is the primary net transmitter versus the net receiver of shocks under diverse market conditions. To accomplish these objectives, we use the wavelet-based Quantile-on-Quantile (QQ), dynamic conditional correlation (DCC), portfolio implications, and Quantile VAR approaches. The results show that GBs and green equities have a strong positive connection, depending on time and frequency domains. However, a negative association between GBs and green equities is observed during periods of crisis, highlighting GBs’ ability to hedge green equity portfolios. The portfolio strategies demonstrate that investors require to invest in the Green Economy equity and S&P GB portfolio to reach the highest level of hedging effectiveness. The findings further imply that the Global Water Equity Index transmits the highest spillover to other green assets, while the Green Economy Equity Index receives the most spillover from other assets. The pairwise volatility connectivity reveals that most pairs have minimal quantile dependence, indicating the potential for diversification across the GB and green equity pairs. These findings have significant implications for investors and policymakers concerned with green investments and climate change mitigation.

Suggested Citation

  • Md. Bokhtiar Hasan & Gazi Salah Uddin & Md. Sumon Ali & Md. Mamunur Rashid & Donghyun Park & Sang Hoon Kang, 2024. "Examining time–frequency quantile dependence between green bond and green equity markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-28, December.
  • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-024-00641-3
    DOI: 10.1186/s40854-024-00641-3
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    More about this item

    Keywords

    Green bond; Green equity; Frequency connectedness; Quantile dependency; Diversification;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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