Shock transmission among green financial instruments and major financial assets and commodities in China: A quantile connectedness analysis

This paper examines return spillovers among green assets, proxied by green bonds and five categories of clean energy stocks, and a broad set of major conventional financial assets and key commodities in China. Special attention is paid to assessing whether shock transmission across Chinese markets varies with the magnitude of those shocks. To this end, the quantile connectedness framework proposed by Ando et al. (2022) is used, which captures market interdependencies under different conditions. Our findings reveal significant connectedness among the markets under scrutiny, with spillovers intensifying sharply during extreme states. Chinese clean energy equities are the dominant net transmitters of spillovers across all market conditions, though transmission is heterogeneous across technologies. In particular, Nuclear, Wind, and Solar sub-sectors consistently lead shock propagation, whereas Water and Garbage power play comparatively minor roles. In contrast, gold, crude oil, and Chinese green bonds act net receivers regardless of market conditions throughout the entire sample period. These results carry interesting practical implications. For investors, portfolio allocation and hedging should be state-dependent. Dynamic hedging linked to tail connectedness thresholds can improve downside protection. Technology tilts are pivotal, as overweighting Nuclear, Wind, and Solar amplifies systemic exposure in crises and booms, while Water and Garbage offer more defensive green exposure. For policymakers, macroprudential oversight should be regime-sensitive, embedding quantile-based connectedness into early warning and stress testing. Strengthening the stability and predictability of the Nuclear, Wind, and Solar segments through credible long-term policies is likewise essential to mitigate systemic amplification.