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Relationship between green bonds and financial and environmental variables: A novel time-varying causality

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  • Hammoudeh, Shawkat
  • Ajmi, Ahdi Noomen
  • Mokni, Khaled

Abstract

In this paper, we examine the time-varying causal relationship between green bonds and other assets including US conventional bonds, WilderHill clean energy (equity) index, and CO2 emission allowances price during the period spanning from 30 July 2014 to 10 February 2020. We apply the novel time-varying Granger causality test (Shi et al. 2018) based on the recursive evolving algorithm introduced by Phillips et al. (2015a, 2015b) for controlling financial bubbles to detect real–time causality, detecting possible changes in the causal direction and dating financial turbulences, The study based on this algorithm reveals a significant causality running from the US 10-year Treasury bond index to green bonds starting from the end of the year 2016 until the end of the sample period. Besides, we find that the link CO2 emission allowances price causing green bonds is significant from the beginning of the sample period to the end of the year 2015. Furthermore, by using the recursive-evolving causality algorithm of the Shi et al. (2018) test, we find that the causality running from the clean energy index to green bonds is very limited to the year 2019. On the other hand, there is no significant causality running from green bonds to all considered assets, indicating no predictive power for this asset in its proper domain, which is not yet examined in the literature.

Suggested Citation

  • Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Mokni, Khaled, 2020. "Relationship between green bonds and financial and environmental variables: A novel time-varying causality," Energy Economics, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320302814
    DOI: 10.1016/j.eneco.2020.104941
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    More about this item

    Keywords

    CO2 emission allowances; Green bonds; Green energy; time-varying causality; recursive-evolving causality;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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