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Do green bond and green stock markets boom and bust together? Evidence from China

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  • Su, Xianfang
  • Guo, Dawei
  • Dai, Liang

Abstract

This paper investigates the green bond-stock correlation in China, as well as the influence of economic policy uncertainty (EPU) on that correlation, through cross-quantilogram and partial cross-quantilogram approaches. Directional spillovers are detected at different quantile levels across various investment horizons, and the findings reveal that the green bond and green stock markets are more connected in extreme market conditions than in normal conditions. The results indicate that the dependence structure between these markets exhibits distinct sector variation; only the green stocks (GS) in the water environment treatment (WT) and atmospheric protection (AP) sectors and green bonds (GB) boom together. Besides providing considerable diversification benefits, GB can act as a safe-haven asset for GS. Moreover, we find that spillover effects tend to be medium- and long-term. The uncertainty variable (EPU) is not a significant determinant of the cross-asset relation. The empirical results have significant implications for the formulation of ESG (Environment, Social and Governance) portfolio strategies and carbon neutral-oriented policymaking.

Suggested Citation

  • Su, Xianfang & Guo, Dawei & Dai, Liang, 2023. "Do green bond and green stock markets boom and bust together? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002600
    DOI: 10.1016/j.irfa.2023.102744
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