Abstract:COVID-19 has morphed from a health crisis to an economic crisis that affected the global economy through several channels. This paper aims to study the impact of COVID-19 on the time-frequency connectedness between Green Bonds and other financial assets. Our sample includes the global stock market, bond market, oil, USD index, and two popular hedging alternatives, namely Gold and Bitcoin, from May 2013 to August 2020. First, we apply the methodologies of Diebold and Yilmaz (International Journal of Forecasting… Show more
“…Given the short-run period, the regional energy markets of closer borders tend to show higher connectedness during the crisis periods. In line with various studies of connectedness (Naeem et al 2021a , b ; Karim and Naeem 2021 ; Karim et al 2022a , b , c ), we report that spillovers are fashioned based on the development of the regional economic and financial power. Thus, markets are connected when there are distressed times and are weakly connected during stable times.…”
Section: Resultssupporting
confidence: 91%
“…Contrarily, ASIA and PACF are the net recipients of spillovers in the long run for each sub-sample. Our findings recall the studies of Naeem et al ( 2021b ), Elsayed et al ( 2020 ), Le et al ( 2021 ), and Salisu and Vo ( 2020 ), and it is asserted that the crisis period, driven by the market sentiment of fear, spreads across the globe that resulted in higher spillovers among the energy markets. Fig.…”
Section: Resultssupporting
confidence: 90%
“…Measuring and monitoring the information transmission and interdependence between the major financial markets is a major concern among the academic research researchers, policymakers, government institutions, investors, and business practitioners (Shen et al 2018 ). It is critical to understand the information transmission mechanism in the regional energy stock market as it helps the investors, hedge funds, and insurance companies in making investment and hedging decisions (Hasan et al 2021 ; Naeem et al 2021a , b ; Dagar et al 2021 ). Given the globalized nature of the world economy and rapid development of the commodity market, understanding the information transmission mechanism in the energy market is not only extremely important to improve the portfolio selection and allocation strategies but also extremely helpful in devising best policy response for maintaining financial stability (Karim et al 2020a , b ) and avoiding any possible financial contagion.…”
Since markets are undergoing severe turbulent economic periods, this study investigates the information transmission of energy stock markets of five regions including North America, South America, Europe, Asia, and Pacific where we differentiated the regional energy markets based on their developing and developed state of economy. We employed time–frequency domain from Jan 1995 to May 2021 and found that energy stocks of developed regions are highly connected. The energy markets of North America, South America, and Europe are the net transmitters of spillovers, whereas the Asian and Pacific energy markets are the net receivers of spillovers. The results also reveal that the connectedness of regional energy markets is time and frequency dependent. Regional energy stocks were highly connected following the Asian financial crisis (AFC), global financial crisis (GFC), European debt crisis (EDC), shale oil revolution (SOR), and COVID-19 pandemic. Time-dependent results reveal that high spillovers formed during stress periods and frequency domain show the higher connectedness of regional energy stock markets in the short run followed by an extreme economic condition. These results have significant implications for policymakers, regulators, investors, and regional controlling bodies to adopt effective strategies during short run to avoid economic downturns and information distortions.
“…Given the short-run period, the regional energy markets of closer borders tend to show higher connectedness during the crisis periods. In line with various studies of connectedness (Naeem et al 2021a , b ; Karim and Naeem 2021 ; Karim et al 2022a , b , c ), we report that spillovers are fashioned based on the development of the regional economic and financial power. Thus, markets are connected when there are distressed times and are weakly connected during stable times.…”
Section: Resultssupporting
confidence: 91%
“…Contrarily, ASIA and PACF are the net recipients of spillovers in the long run for each sub-sample. Our findings recall the studies of Naeem et al ( 2021b ), Elsayed et al ( 2020 ), Le et al ( 2021 ), and Salisu and Vo ( 2020 ), and it is asserted that the crisis period, driven by the market sentiment of fear, spreads across the globe that resulted in higher spillovers among the energy markets. Fig.…”
Section: Resultssupporting
confidence: 90%
“…Measuring and monitoring the information transmission and interdependence between the major financial markets is a major concern among the academic research researchers, policymakers, government institutions, investors, and business practitioners (Shen et al 2018 ). It is critical to understand the information transmission mechanism in the regional energy stock market as it helps the investors, hedge funds, and insurance companies in making investment and hedging decisions (Hasan et al 2021 ; Naeem et al 2021a , b ; Dagar et al 2021 ). Given the globalized nature of the world economy and rapid development of the commodity market, understanding the information transmission mechanism in the energy market is not only extremely important to improve the portfolio selection and allocation strategies but also extremely helpful in devising best policy response for maintaining financial stability (Karim et al 2020a , b ) and avoiding any possible financial contagion.…”
Since markets are undergoing severe turbulent economic periods, this study investigates the information transmission of energy stock markets of five regions including North America, South America, Europe, Asia, and Pacific where we differentiated the regional energy markets based on their developing and developed state of economy. We employed time–frequency domain from Jan 1995 to May 2021 and found that energy stocks of developed regions are highly connected. The energy markets of North America, South America, and Europe are the net transmitters of spillovers, whereas the Asian and Pacific energy markets are the net receivers of spillovers. The results also reveal that the connectedness of regional energy markets is time and frequency dependent. Regional energy stocks were highly connected following the Asian financial crisis (AFC), global financial crisis (GFC), European debt crisis (EDC), shale oil revolution (SOR), and COVID-19 pandemic. Time-dependent results reveal that high spillovers formed during stress periods and frequency domain show the higher connectedness of regional energy stock markets in the short run followed by an extreme economic condition. These results have significant implications for policymakers, regulators, investors, and regional controlling bodies to adopt effective strategies during short run to avoid economic downturns and information distortions.
“…The growth in green bonds is reported from USD 37bn to USD 259bn in 2013, respectively (Climate Bond Initiative, 2019). Conspicuously, the investment in the environment and clean energy indices have been growing exponentially due to the increasing interests of investors toward the clean environment, renewable energy sources, socially responsible initiatives and escalated threats to the global ecosystem (Naeem et al, 2021a;Karim, 2021a, b;. Green assets are earmarked with a green label which ensures that proceeds of these investments are attributed to the projects solely related to energy efficiency, material efficiency, clean and green transportation and recycling (Arif et al, 2021a;Lobato et al, 2021;Ferrat et al, 2022;Ielasi et al, 2018).…”
Section: Introductionmentioning
confidence: 99%
“…However, clear evidence of connectedness among green, Islamic and conventional financial markets is lacking. Various studies employed time-frequency techniques (Naeem et al, 2021a;Arif et al, 2021a;Adekoya and Oliyide, 2021), while others employed cross-quantilogram (Arif et al, 2021b), regimeswitching copula framework (Shahzad et al, 2019) and wavelet analysis (Sharif et al, 2020;IJMF 18,4 Reboredo et al, 2020). Meanwhile, the contribution of study adds to the existing literature by employing the time-varying parameter vector auto-regression (TVP-VAR) approach, which surpasses the technique of Yilmaz (2012, 2014) in terms of providing free size for rolling-window, no problem of outliers and missing no observations in the dataset.…”
PurposeThis study aims to examine the connectedness among green, Islamic and conventional financial markets from December 2008 to May 2021. Moreover, the impact of global factors on the connectedness of given financial markets is also observed.Design/methodology/approachThis study first employed the time-varying parameter vector autoregressions (TVP-VAR) technique to explore the connectedness of markets. Second, This study utilized the wavelet coherence analysis to test the time-frequency impact of global factors in terms of implied volatilities of stock, oil, gold, currency and bond on the connectedness across financial markets.FindingsThis study finds Islamic stocks, sustainability index and S&P500 composite index are the net transmitters, whereas Sukuk, commodity index, bond market, clean energy and green bonds are the net recipient of spillovers. Time-varying features of green, Islamic and conventional financial markets are evident in system-wide connectedness. This study further evidenced that global factors drive the connectedness of financial markets, particularly during stressful times.Practical implicationsThe findings of this study furnish significant implications for policymakers, regulatory authorities, investors, financial market participants and portfolio managers in terms of carefully assessing the unique characteristics offered by each financial market in terms of risk mitigation and diversifying the portfolios.Originality/valueUsing a portfolio of green, Islamic and conventional financial markets, the uniqueness of this study lies in the examination of the connectedness of these markets by deploying the TVP-VAR technique. In addition, wavelet analysis offers a significant contribution in terms of global factors driving the connectedness of green, Islamic and conventional markets.
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