The Volatility of the “Green” Option-Adjusted Spread: Evidence before and during the Pandemic Period

Abstract

The paper is an investigation on the impact of financial markets on the volatility of the green bonds credit risk component, measured by the option-adjusted spread/swap curve (OAS) before and during the pandemic period. To this purpose, after observing the dynamic joint correlations between all the variables, we adopt Exponential and Generalized AutoRegressive Conditional Heteroskedasticity models, putting the OAS as dependent variable. Our main results show that the conditional variance parameters are significant and persistent in both times, testifying the overall impact of the other markets on the OAS. In more detail, we highlight that the gamma in the two Exponential models is positive: so, the “green” credit risk volatility is more sensitive to positive shocks than to negative ones. With reference to the conditional mean, we note that if during the non-pandemic period only the stock market is significant, during the pandemic also conventional bonds and gold are impacting. To the best of our knowledge this is the first study that analyzes the specific credit risk component of the green bond yields: we deem our findings useful to observe the change of green bonds creditworthiness in a complex market context and interesting in terms of policy implications.

A Bibliometric Analysis of Green Bonds and Sustainable Green Energy: Evidence from the Last Fifteen Years (2007–2022)

“…Due to the fast-growing attention in green bond return as compared to convention bonds, major aspects of the literature have focused on the "Green-bond" and the difference in yield between green and conventional bond [60][61][62][63][64][65], where robust evidence on the "Greenium" exists regarding the lower yield on green bond against conventional bond [66][67][68][69][70][71][72]. In the view of green bond and its impact on environmental performance, the previous studies shed light on the activities of ESG which determined the favorable benefits [73][74][75][76][77][78].…”

Green Bond as an Innovative Financial Instrument in the Indian Financial Market: Insights From Systematic Literature Review Approach

“…Pham (2016) conducted the first empirical study on GB volatility and showed higher volatility in the “label GB markets” than in non-label GB. Since then, many studies investigated this segment and exerted the GB as “a risk-alleviating tool” for investors (Gatti & Florio, 2018; Jin et al, 2020; Mensi et al, 2022; Ortolano & Nissi, 2022; Uddin et al, 2022). Other strands of the literature demonstrated the portfolio diversification benefits for various investors (Gianfrate & Peri, 2019; Huynh et al, 2020; Karim & Naeem, 2022; Sohag et al, 2022; Tsagkanos et al, 2022).…”