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Dynamic connectedness, asymmetric risk spillovers, and hedging performance of China's green bonds

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  • Man, Yuanyuan
  • Zhang, Sunpei
  • Liu, Jianing

Abstract

In this paper, we analyze the dynamic connectedness and asymmetric risk spillovers among China's green bonds, bonds, stock, and crude oil markets in terms of magnitude, direction, and patterns by utilizing the DCC-GARCH-t-Copula model. We then evaluate the hedging performance of China's green bonds and compare it before and after the COVID-19 pandemic. Our empirical results demonstrate that, on average, green bonds display significantly lower extreme risk and have weak connectedness with stock and crude oil markets. The spillover effect of green bonds and crude oil risk is particularly pronounced; however, there are weak green bonds-stock risk spillover effects. Subsequent to the COVID-19 outbreak, the green bonds market is more resilient to extreme bonds market declines and offers improved hedging potential for bonds. Our findings furnish an up-to-date picture and invaluable information for the portfolio, risk management, and hedging strategies for pro-environmental investors in emerging green bonds markets.

Suggested Citation

  • Man, Yuanyuan & Zhang, Sunpei & Liu, Jianing, 2023. "Dynamic connectedness, asymmetric risk spillovers, and hedging performance of China's green bonds," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004555
    DOI: 10.1016/j.frl.2023.104083
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    More about this item

    Keywords

    Green bonds; Dynamic connectedness; Asymmetric extreme spillovers; Hedging performance; China;
    All these keywords.

    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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