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Green Finance Under Climate Risks: A Comparative Analysis of Hedging Effects Between Green Bonds and Green Stocks

Author

Listed:
  • Ting Wang
  • Chi‐Wei Su
  • Hsuling Chang
  • Oana‐Ramona Lobonţ

Abstract

Investigating the hedging effectiveness of green finance against climate risks is essential for optimizing investment strategies. This study employs the rolling‐window wavelet correlation method to capture the time‐varying and multiscale relationships among green bond (GB), green stock (GS), climate physical risk index (PRI), and transition risks index (TRI). The empirical results show that GB serves as a stable short‐term hedge against climate transition and physical risks, supported by their fixed‐income nature and alignment with climate‐oriented investment demand. In contrast, GS correlates negatively with TRI in the short run but shows strengthening hedging ability against physical risks after mid‐2018. Over longer horizons, GS demonstrates stronger hedging effectiveness against both risk types, with relatively consistent performance in hedging against physical risks. But GB shows weaker and less consistent hedging capacity, often correlating negatively at the fortnightly scale and partially turning positive monthly. Despite both assets remaining vulnerable to systemic financial disruptions, their complementary hedging profiles support strategic diversification within multihorizon portfolios to improve climate risk resilience. Against the backdrop of the escalating climate crisis, this paper offers strategic insights for investors, policymakers, and regulators to enhance climate risk resilience through green finance. JEL Classification: C32, Q54, G12

Suggested Citation

  • Ting Wang & Chi‐Wei Su & Hsuling Chang & Oana‐Ramona Lobonţ, 2026. "Green Finance Under Climate Risks: A Comparative Analysis of Hedging Effects Between Green Bonds and Green Stocks," Australian Economic Papers, Wiley Blackwell, vol. 65(1), pages 83-93, March.
    • Handle: RePEc:bla:ausecp:v:65:y:2026:i:1:p:83-93
    DOI: 10.1111/1467-8454.70013
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    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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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