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Frequency spillovers between green bonds, global factors and stock market before and during COVID-19 crisis

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  • Mensi, Walid
  • Vo, Xuan Vinh
  • Ko, Hee-Un
  • Kang, Sang Hoon

Abstract

This paper examines frequency dynamic spillovers in return and volatility and the hedging ability of Green Bonds, gold, silver, oil, the US dollar index, and volatility index against downside US stock prices before and during the COVID-19 pandemic outbreak and for the short and long run. To do so, we use the Diebold and Yilmaz (2014), the TVP-VAR model, and the frequency spillover index by Baruník and Křehlík (2018). We show that the short-term volatility spillovers dominate their long-term counterparts. Green Bond is net transmitters of spillovers in the system at the short term and net receivers at the long term. S&P500 and silver (USDX and oil) are net transmitters (receivers) of short- and long-term spillovers. Gold and VIX are net receivers of short-term spillovers and net transmitters of long-term spillovers. COVID-19 crisis has more effects on the short-term spillover, which reaches its highest level early 2020. COVID-19 and time horizons lead the direction and the magnitude of spillovers. The Quantile-on-Quantile regression analysis shows significant nonlinear relationships between markets under study. More interestingly, we show that green bonds and gold are safe haven assets for US equity investors during COVID-19. On the other hand, a mixed portfolio offers higher diversification benefits. Finally, hedging effectiveness is dependent on COVID-19 and time horizon.

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  • Mensi, Walid & Vo, Xuan Vinh & Ko, Hee-Un & Kang, Sang Hoon, 2023. "Frequency spillovers between green bonds, global factors and stock market before and during COVID-19 crisis," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 558-580.
    • Handle: RePEc:eee:ecanpo:v:77:y:2023:i:c:p:558-580
    DOI: 10.1016/j.eap.2022.12.010
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    More about this item

    Keywords

    Green bonds; Global factors; Spillovers; Frequencies; Hedging; COVID-19;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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