The Connectedness among Green Bonds and Other Asset Classes: Evidence from Emerging Markets

As climate change intensifies, current climate finance remains insufficient to achieve Paris Agreement goals, particularly in developing countries. Closing this gap requires greater international private capital involvement. However, uncertainties about climate finance instruments in developing markets challenge private investment. This study examines green bonds issued in emerging markets, analyzing their dependencies with debt, equity, and commodity markets using the cross-quantilogram method. Results reveal short-term positive dependencies between green bonds and equity and debt markets, indicating high cross-market contagion initially. Yet, these dependencies diverge after a week. While green bonds maintain a positive medium-term relationship with other debt instruments, their medium-term dependence on equity and commodities turns negative. This negative relationship strengthens under normal market conditions but weakens during extreme market events. These findings highlight green bonds' potential as diversification tools for equity and commodity investors in emerging markets. However, short-term contagion remains a challenge for regulators, demanding further analysis of financial stability implications.