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On the connectedness between climate policy uncertainty, green bonds, and equity

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  • David Y. Aharon
  • Ender Demir
  • Zaghum Umar

Abstract

This paper presents a first connectedness analysis using the novel Climate Policy Uncertainty Index (CUI) proposed by Gavriilidis (2021), Green equity and bonds (GE and GB – Green investments), and Dirty equity and bonds (DE and DB – dirty investments). Using data covering the years from 2007 to 2021, we show that the effect of climate policy uncertainty as measured by the CUI is far from constant through time. While static analysis indicates that green investments are isolated from fluctuations in the CUI, an inspection from a dynamic perspective shows that CUI is mostly a transmitter of shocks. This role as a transmitter is evident primarily in two crises since 2008: the subprime crisis and the European debt crisis. Interestingly, during recent years, the influence of climate change policy uncertainty as measured by the CUI has weakened, and it has even become a net recipient of shocks.

Suggested Citation

  • David Y. Aharon & Ender Demir & Zaghum Umar, 2025. "On the connectedness between climate policy uncertainty, green bonds, and equity," Modern Finance, Modern Finance Institute, vol. 3(1), pages 25-37.
    • Handle: RePEc:bdy:modfin:v:3:y:2025:i:1:p:25-37:id:230
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    References listed on IDEAS

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    1. Guo, Dong & Zhou, Peng, 2021. "Green bonds as hedging assets before and after COVID: A comparative study between the US and China," Energy Economics, Elsevier, vol. 104(C).
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