Did green debt instruments aid diversification during the COVID-19 pandemic?

Abstract

Faced with a persistent pandemic, investors are concerned about portfolio diversification. While the literature on COVID-19 has evolved impressively, limited work remains on diversification opportunities. We contribute to the literature by exploring the volatility and co-movement of different sovereign debt instruments, including green sukuk, sukuk, bond and Islamic and conventional equity indices for Indonesia. Our results consistently point towards increased asset co-movement and weak profitability during the pandemic. Interestingly, sukuk and green sukuk have a 14% correlation with stocks, suggesting potential diversification prospects in times of extreme shocks.

Do Islamic Cryptocurrencies Provide Diversification Opportunities to Indonesian Islamic Investors?

“…There is a sharp decline in returns during the epidemic phase for the two shariah compliant cryptos as well, with onegram coin recovering in pandemic, while X8X not really recovering. These findings for asset classes especially in the case of Indonesia is in-line with the findings of Narayan et al (2022) who argue that asset price reaction to the different phases of COVID-19 has been heterogeneous. The behaviour of volatility and returns of the Indonesian equities and their seemingly quicker recovery is also in line with the earlier works of Arshad and Rizvi (2015) and Rizvi et al (2018) who argue on the relative resilience of emerging markets in times of crises owing to the smaller size and depth of these markets.…”

“…As Figure 1 provides us insights into this, the peaks and troughs are more pronounced and frequent in the Islamic indices rather than the conventional ones. This unique behaviour of the Indonesian Islamic equities has been found by Narayan et al (2022) who while investigating the Indonesian Islamic equities with other financial asset classes argue the similar but subdued reaction. Also to note is that the higher volatility in the correlation persists through the pandemic phase for conventional indices and cryptos while in Islamic index and crypto, it stabilizes sooner.…”

Time–frequency co-movement and risk connectedness among cryptocurrencies: new evidence from the higher-order moments before and during the COVID-19 pandemic

“…Against this backdrop, investors have become more interested in Bitcoin, so the demand for it continues to rise. A substantial body of literature has confirmed the impacts of the COVID-19 pandemic on contagion effects, interdependence, comovements, risk spillovers, 4 and portfolio diversifications in global traditional financial markets (see Liu et al 2022;Gharib et al 2021;Boubaker et al 2021;Zhang et al 2022a;Narayan et al 2022;Rehman et al 2021;Abuzayed et al 2021;Ali et al 2021). As asserted by Lahmiri and Bekiros (2020), cryptocurrencies have been relatively more volatile than international stock markets during the COVID-19 pandemic.…”

Emerging Research Trends in Green Finance: A Bibliometric Overview

“…Green debt products are a relatively new development in financial markets. The application of this instrument in financing renewable energy projects worldwide has been established (Narayan et al 2022;Charfeddine and Kahia 2019). By introducing the purchase of liquid fixed-income assets with the additional feature of bringing investors with a social conscience who want to rely on green initiatives in the financial market, green bonds, also known as climate bonds or sustainable bonds, are expected to signify the start of a paradigm change (Bernabé Argandoña et al 2022;Hadaś-Dyduch et al 2022;Lee and Lee 2022).…”

“…The entire net income from the issuance of green financial bonds shall be used to finance green initiatives, often through the issuance of green loans for the development of green infrastructure projects (Lin and Hong 2022). Narayan et al (2022) provide evidence of the quest for quality, with investors shifting their investments from riskier assets such as conventional and Islamic stocks to safer ones such as Sukuk and Green Sukuk. Generally, financial institutions that care about environmental sustainability deal with green financial securities on the financial market (Talan and Sharma 2019).…”