Multifractal cross-correlations between green bonds and financial assets

Abstract

We analyze multifractality for green bonds, stock sector indices, and US economic sector bonds. Green bonds and US bonds show non-linear cross-correlations. We perform Multifractal Detrended Cross-Correlations Analysis (MF-DCCA) to analyze multifractal crosscorrelations and the weak version of the Efficient Market Hypothesis (EMH). Our findings are relevant to academics, financial professionals and the general public. Although green bonds are bonds used exclusively to finance sustainable investments, they are still inefficient assets. We find that bond indices for consumer staples and equity indices for information technology and the real state sector can be used to hedge investments in green bonds.

Analysis of the Relationship between Green Bonds and Equity Markets by Cross-Quantilogram Method

“…He also stated that due to the weak joint movements of green bonds, it would be beneficial in diversification against stock and energy markets. Fernandes et al (2022) tried to estimate the versatility for green bonds, stock markets and US economic sector bonds. In their study, they stated that there is a non-linear crosscorrelation relationship between green bonds and US bonds.…”