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The roles of oil shocks and geopolitical uncertainties on China’s green bond returns

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  • Lee, Chi-Chuan
  • Tang, Huayun
  • Li, Ding

Abstract

This research assesses the linkages among oil shocks, geopolitical uncertainties, and green bond returns based on a structural vector autoregression framework for China from January 2010 to May 2021. Evidence reveals that oil-specific demand shocks significantly affect geopolitical uncertainty and green bond dynamics. An unanticipated positive change in oil prices triggers an increase in geopolitical risks and a reduction in green bond returns. The results also demonstrate that positive changes in geopolitical risks come with a drop in oil prices and a rise in green bond returns, but the influence of geopolitical shocks is heterogeneous, depending upon which categories of risk are considered. Geopolitical acts negatively affect oil prices, while geopolitical threats have a significantly positive impact on green bond returns. Understanding these relationships can therefore enable investors and regulators to develop and enforce appropriate policies to help overcome oil shocks and fluctuations in geopolitical risks.

Suggested Citation

  • Lee, Chi-Chuan & Tang, Huayun & Li, Ding, 2022. "The roles of oil shocks and geopolitical uncertainties on China’s green bond returns," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 494-505.
    • Handle: RePEc:eee:ecanpo:v:74:y:2022:i:c:p:494-505
    DOI: 10.1016/j.eap.2022.03.008
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    More about this item

    Keywords

    Oil price shock; Policy-related risk; Green bond return; SVAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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