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Dynamic spillovers and connectedness between crude oil and green bond markets

Author

Listed:
  • Yousaf, Imran
  • Mensi, Walid
  • Vo, Xuan Vinh
  • Kang, Sang Hoon

Abstract

In this paper, we examine dynamic frequency spillovers, co-movements and volatility transmission among green bond yields and crude oil. We use different econometric methods including the Baruník and Křehlík (2018) [thereafter BK-18], DCC-GARCH, BEKK-GJR-GARCH, and Wavelet coherence. The results of BK-18 show that the spillover between green bonds is higher in short-term horizons than in intermediate- and long-term horizons. Furthermore, Industrial and Securitized ABS bonds are weakly connected with other green bonds. The findings of BEKK-GJR-GARCH model shows the negative unidirectional volatility spillover from oil to Global GB markets, indicating the hedging ability of green bonds against the oil. The dynamic conditional correlations are negative between oil and Industrial and Securitized ABS over sample period, suggesting them as strong hedge and safe haven against the oil. The Wavelet Coherence analysis reveals that the connectedness is weak between crude oil and green bonds in most of the short and long run. However, we observe the leading role of oil against green bonds in for short period of time. Finally, the spillovers and hedging effectiveness results reveal that the crude-oil- and green-bond-based portfolios provide huge diversification benefits to investors and portfolio managers.

Suggested Citation

  • Yousaf, Imran & Mensi, Walid & Vo, Xuan Vinh & Kang, Sang Hoon, 2024. "Dynamic spillovers and connectedness between crude oil and green bond markets," Resources Policy, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:jrpoli:v:89:y:2024:i:c:s0301420723013053
    DOI: 10.1016/j.resourpol.2023.104594
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    More about this item

    Keywords

    Green bonds; Crude oil; Spillovers; Frequencies; Hedging cost;
    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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