Green Bonds and Asset Classes: New Evidence from Time-varying Copula and Transfer Entropy Models

Abstract

The green bond market has gradually developed worldwide since its debut in 2007 and is viewed as a new form of investment. This study explores the time-varying interdependence between green bond and conventional asset classes, namely Bitcoin price, Standard and Poor’s (S&P) 500, Clean Energy Index, Goldman Sachs Commodity Index (GSCI) Commodity Index and 10-year US bond spanning from May 2013 to December 2019, using both time-varying copula and transfer entropy models. We first focus on static and dynamic correlations between the green bond and other assets, and then identify the causal association among them. The findings suggest that green bonds and other assets have conditional time-varying dependence, and dependence is relatively low. Using transfer entropy, further evidence is gained for causal associations between two variables, which is depicted by two categories like mono-direction and bi-direction. Such nexus reveals the transmitter and receiver of return innovations on these markets. These findings make a considerable contribution to policymakers and environmentally friendly investors with green bond positions.

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

“…Similarly, mixed results are observed when examining the causal association between green bonds and other conventional assets such as commodities, financial assets and environmental assets in the studies of Hung (2021a), Lee et al (2021), Liu et al (2021), Hammoudeh et al (2020), Park et al (2020), Tolliver et al (2020), Reboredo and Ugolini (2020), Nguyen et al (2020) and Reboredo (2018). In the study by Hung (2021a), a bidirectional relationship between green bonds and the S&P 500 and the Bitcoin market while a unidirectional one with the price of CO 2 emission allowance was observed. A bidirectional causal relationship between green bonds and the oil process was also observed by Lee et al (2021).…”

“…This is explained by the significant growth in green markets within their short lifespan. Green investments are mainly financial avenues used to mobilise and channel funds towards those investments, which directly or indirectly benefit the environment and protect the climate, thus, they are a go-to type of investment by ethical investors (Arif et al 2021;Hung 2021aHung , 2021b. The growth in this market is further accounted for by the need for investors to diversify their portfolio to minimise risks while maximising returns (Tiwari et al 2020;Arif et al 2021;Hung 2021b;Ferrer et al 2021).…”

Is There an Asymmetric Relationship between Economic Policy Uncertainty, Cryptocurrencies, and Global Green Bonds? Evidence from the United States of America

“…Since the world bank issue in 2008, the green bond market has grown significantly, from $11 billion in 2013 to $167 billion in 2018 [18]. Regardless of the rapid growth in the green bond market, only a few studies have estimated the transmission effect of other modern financial assets on green bonds [19]. A few recent studies projected that the interdependency between green bonds and other financial and energy stocks might vary due to the heterogeneity of the magnitude of investors who interact in these indices [1].…”

“…In addition, the author also reveals that although the above classes of the asset are a good source of return, these assets are shock senders, and fluctuation and volatility are remarkably high in these assets. Considering the relationship between traditional assets and green bonds, Hung [19] empirically investigates the influence of commodity and energy indexes on the green bond market performance. Using the Quantile and Quantile method, the author reveals a positive interaction between the performance of the explanatory and the outcome variables.…”

The connectedness between green and conventional bond yields during the COVID-19 crisis: The role of the vaccination process

“…Overall, there are exist a few studies that explore the correlation between green bonds and other financial markets, such as stock market, cryptocurrency market, clean energy consumption, black bond market, green energy stocks, and fintech ( Glomsrød and Wei, 2018 , Broadstock and Cheng, 2019 , Hammoudeh et al, 2020 , Nguyen et al, 2020 , Reboredo and Ugolini, 2020 , Tang and Zhang, 2020 ; Le et al, 2021). In the pre-Covid-19 era, Hung (2021) document a low connectedness between the two bond markets due to lower uncertainty levels. The only study close to ours is that by Cui et al (2022) which explores the impact of the pandemic on the global green bond and other conventional assets, i.e., commodity, stock and clean energy markets, using a spillovers framework.…”