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Connectivity of green financial assets under geopolitical risks and market-implied volatility

Author

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  • Bajra, Ujkan Q.
  • Aliu, Florin
  • Prenaj, Vlora

Abstract

This study examines the relationships between green bonds, ESG ETFs, and energy-efficient cryptocurrencies under Geopolitical Risk Index (GPR) and Volatility Index (VIX). Using the Time-Varying Parameter Vector Autoregressions (TVP-VARs) model with daily data from January 1, 2021, to November 1, 2024, the results show a dynamic relationship between green bonds, equity ETFs, and cryptocurrencies, forming a hybrid network influenced by market sentiment and risk factors. Cryptocurrencies exhibit strong intra-group correlations, reflecting a high correlation. The findings suggest that geopolitical risks mainly impact Green Bond ETFs, offering stability during periods of market volatility. Equities, particularly Global and ESG Equity ETFs, respond to geopolitical risks and volatility with varying sensitivities. Cryptocurrencies are more sensitive to the VIX, while some demonstrate moderate reactions to GPR. These results highlight the potential for diversification by combining traditional sustainable investments with digital assets in the evolving sustainable finance landscape.

Suggested Citation

  • Bajra, Ujkan Q. & Aliu, Florin & Prenaj, Vlora, 2025. "Connectivity of green financial assets under geopolitical risks and market-implied volatility," Finance Research Letters, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:finlet:v:76:y:2025:i:c:s1544612325003010
    DOI: 10.1016/j.frl.2025.107037
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    More about this item

    Keywords

    Green bonds; ESG ETFs; Cryptocurrencies; Geopolitical Risk; Volatility Index; TVP-VAR; War;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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

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