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Green bond performance under ESG uncertainty: Nonlinear Time–Frequency quantile analysis

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  • Shah, Syed Adnan
  • Nawaz, Ali
  • Du, Yuan
  • Su, Chi Wei

Abstract

Green bonds can reconcile environmental impact with financial performance, yet rising ESG policy uncertainty may undermine their stabilizing role. This study examines how global ESG uncertainty is associated with green bond returns in a time-frequency and distributional framework. Using the ESG Uncertainty Index (ESGUI), we analyze monthly returns on the S&P Global Green Bond Index from November 2014 to November 2024. We apply wavelet-based quantile-on-quantile regression to capture these interactions across investment horizons and return quantiles. The results reveal asymmetric and regime-dependent patterns: higher ESG uncertainty is associated with weaker green bond performance, especially under bearish market conditions in the short term, with negative effects remaining visible in the medium term and persisting into the long term through structural channels; by contrast, lower ESG uncertainty is associated with improved green bond performance, reflecting clearer sustainability signals. These findings suggest that green bond resilience is conditional on clear and credible ESG policy signals. The study contributes to sustainable finance theory and risk modelling, while offering practical insights for investors and policymakers on managing risk across different time horizons.

Suggested Citation

  • Shah, Syed Adnan & Nawaz, Ali & Du, Yuan & Su, Chi Wei, 2026. "Green bond performance under ESG uncertainty: Nonlinear Time–Frequency quantile analysis," Economic Modelling, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:ecmode:v:161:y:2026:i:c:s0264999326001604
    DOI: 10.1016/j.econmod.2026.107631
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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