Risk Spillovers and Network Connectedness between Clean Energy Stocks, Green Bonds, and Other Financial Assets: Evidence from China

Abstract

As climate change impacts energy consumption, investments in clean energy are now associated with increased levels of risk and uncertainty. Consequently, the management of risk for clean energy investors has garnered significant academic attention. This study was designed to explore the risk transfers among clean energy markets, how they respond to market volatility, and how exceptional events impact the risk spillover. This was performed by examining the risk spillover of and asymmetric connectedness between clean energy markets, green bonds, and other financial markets in China, in line with the connectedness framework and minimum spanning tree technique. The findings revealed that clean energy markets exhibit heterogeneity in terms of the direction and magnitude of net risk spillover, the types of hedging assets involved, and their response to market volatility. Exceptional events, such as the Russian–Ukrainian conflict and COVID-19 pandemic, have an impact on the spillover relationships. During stable market conditions, green bonds experience fewer spillovers from clean energy markets, whereas, in times of volatility, gold markets are subjected to fewer spillovers. In the time domain, the overall long-term spillover is stronger compared to the short and medium terms. In the frequency domain, there is a significant risk of low-frequency transmission. These findings hold practical implications for energy investors in portfolio construction and for policymakers in pursuing sustainability objectives.

Factors influencing green bond yield: Evidence from Asia and Latin American countries

“…Conversely, the volatility spillover of green bonds to renewable energy and crypto markets indicates a better diversification avenue in the short run (Yadav et al, 2023). Further evidence showed a lower spillover from clean energy to green bonds, indicating better portfolio benefits for their investors (Chen et al, 2023). Some suggested an equi-correlation between green and conventional assets such as green, precious metals, and cryptocurrency during a market downturn.…”