IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v98y2025ics1059056025000061.html
   My bibliography  Save this article

Liquidity spillover and investment strategy construction among Chinese green financial markets

Author

Listed:
  • Gao, Yang
  • Zhou, Yueyi
  • Zhao, Wandi

Abstract

This study investigates liquidity spillover effects within Chinese green financial markets and their implications for investment strategy construction. Utilizing time-varying parameter vector autoregression and quantile connectedness methods, we analyze the interconnectedness of these markets from both temporal and quantile perspectives. Our findings reveal that liquidity spillovers exhibit notable time-varying characteristics, with spillover effects being weaker in low and intermediate quantiles and more pronounced in high quantile. The minimum connectedness portfolio analysis demonstrates superior performance with more stable and higher cumulative returns surpassing most individual assets. Furthermore, including green bonds in these portfolios is an effective strategy for mitigating portfolio risk.

Suggested Citation

  • Gao, Yang & Zhou, Yueyi & Zhao, Wandi, 2025. "Liquidity spillover and investment strategy construction among Chinese green financial markets," International Review of Economics & Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000061
    DOI: 10.1016/j.iref.2025.103843
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025000061
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.103843?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    2. Kaul, Aditya & Kayacetin, Nuri Volkan, 2017. "Flight-to-quality, economic fundamentals, and stock returns," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 162-175.
    3. Saeed, Tareq & Bouri, Elie & Alsulami, Hamed, 2021. "Extreme return connectedness and its determinants between clean/green and dirty energy investments," Energy Economics, Elsevier, vol. 96(C).
    4. Pham, Son D. & Nguyen, Thao T.T. & Do, Hung X., 2024. "Impact of climate policy uncertainty on return spillover among green assets and portfolio implications," Energy Economics, Elsevier, vol. 134(C).
    5. Pham, Linh, 2021. "Frequency connectedness and cross-quantile dependence between green bond and green equity markets," Energy Economics, Elsevier, vol. 98(C).
    6. Wu, Ruirui & Qin, Zhongfeng, 2024. "Asymmetric volatility spillovers among new energy, ESG, green bond and carbon markets," Energy, Elsevier, vol. 292(C).
    7. Su, Tong & Lin, Boqiang, 2022. "The liquidity impact of Chinese green bonds spreads," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 318-334.
    8. Reboredo, Juan C., 2018. "Green bond and financial markets: Co-movement, diversification and price spillover effects," Energy Economics, Elsevier, vol. 74(C), pages 38-50.
    9. Grillini, Stefano & Ozkan, Aydin & Sharma, Abhijit, 2022. "Static and dynamic liquidity spillovers in the Eurozone: The role of financial contagion and the Covid-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 83(C).
    10. Arif, Muhammad & Hasan, Mudassar & Alawi, Suha M. & Naeem, Muhammad Abubakr, 2021. "COVID-19 and time-frequency connectedness between green and conventional financial markets," Global Finance Journal, Elsevier, vol. 49(C).
    11. David C. Broadstock & Ioannis Chatziantoniou & David Gabauer, 2022. "Minimum Connectedness Portfolios and the Market for Green Bonds: Advocating Socially Responsible Investment (SRI) Activity," Springer Books, in: Christos Floros & Ioannis Chatziantoniou (ed.), Applications in Energy Finance, chapter 0, pages 217-253, Springer.
    12. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    13. Umar, Muhammad & Farid, Saqib & Naeem, Muhammad Abubakr, 2022. "Time-frequency connectedness among clean-energy stocks and fossil fuel markets: Comparison between financial, oil and pandemic crisis," Energy, Elsevier, vol. 240(C).
    14. Linh Pham, 2016. "Is it risky to go green? A volatility analysis of the green bond market," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(4), pages 263-291, October.
    15. Zhu, Huiming & Chen, Weiyan & Hau, Liya & Chen, Qitong, 2021. "Time-frequency connectedness of crude oil, economic policy uncertainty and Chinese commodity markets: Evidence from rolling window analysis," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    16. Duan, Xiaoping & Xiao, Ya & Ren, Xiaohang & Taghizadeh-Hesary, Farhad & Duan, Kun, 2023. "Dynamic spillover between traditional energy markets and emerging green markets: Implications for sustainable development," Resources Policy, Elsevier, vol. 82(C).
    17. Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 925-957, March.
    18. Alexakis, Christos & Chantziaras, Antonios & Economou, Fotini & Eleftheriou, Konstantinos & Grose, Christos, 2023. "Animal Behavior in Capital markets: Herding formation dynamics, trading volume, and the role of COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    19. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    20. Reboredo, Juan C. & Ugolini, Andrea & Ojea-Ferreiro, Javier, 2022. "Do green bonds de-risk investment in low-carbon stocks?," Economic Modelling, Elsevier, vol. 108(C).
    21. Zhang, He & Gong, Zhenting & Yang, Yunglieh & Chen, Fan, 2023. "Dynamic connectedness between China green bond, carbon market and traditional financial markets: Evidence from quantile connectedness approach," Finance Research Letters, Elsevier, vol. 58(PC).
    22. Broadstock, David C. & Cheng, Louis T.W., 2019. "Time-varying relation between black and green bond price benchmarks: Macroeconomic determinants for the first decade," Finance Research Letters, Elsevier, vol. 29(C), pages 17-22.
    23. John A Mathews & Sean Kidney, 2012. "Financing climate-friendly energy development through bonds," Development Southern Africa, Taylor & Francis Journals, vol. 29(2), pages 337-349, June.
    24. Adekoya, Oluwasegun B. & Abakah, Emmanuel J.A. & Oliyide, Johnson A. & Luis A, Gil-Alana, 2023. "Factors behind the performance of green bond markets," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 92-106.
    25. Hee-Joon Ahn & Jun Cai & Cheol-Won Yang, 2018. "Which Liquidity Proxy Measures Liquidity Best in Emerging Markets?," Economies, MDPI, vol. 6(4), pages 1-29, December.
    26. Wang, Kai & Li, Tingting & San, Ziyao & Gao, Hao, 2023. "How does corporate ESG performance affect stock liquidity? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    27. Pham, Linh & Cepni, Oguzhan, 2022. "Extreme directional spillovers between investor attention and green bond markets," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 186-210.
    28. Sohag, Kazi & Hassan, M. Kabir & Bakhteyev, Stepan & Mariev, Oleg, 2023. "Do green and dirty investments hedge each other?," Energy Economics, Elsevier, vol. 120(C).
    29. Pham, Linh & Nguyen, Canh Phuc, 2021. "Asymmetric tail dependence between green bonds and other asset classes," Global Finance Journal, Elsevier, vol. 50(C).
    30. Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September.
    31. Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Gabauer, David & Dwumfour, Richard Adjei, 2022. "Dynamic spillover effects among green bond, renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies," Global Finance Journal, Elsevier, vol. 51(C).
    32. Gao, Yang & Li, Yangyang & Wang, Yaojun, 2021. "Risk spillover and network connectedness analysis of China’s green bond and financial markets: Evidence from financial events of 2015–2020," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    33. Flammer, Caroline, 2021. "Corporate green bonds," Journal of Financial Economics, Elsevier, vol. 142(2), pages 499-516.
    34. Reboredo, Juan C. & Ugolini, Andrea, 2020. "Price connectedness between green bond and financial markets," Economic Modelling, Elsevier, vol. 88(C), pages 25-38.
    35. Cao, Mingyao & Duan, Keyi & Ibrahim, Haslindar, 2023. "Green investments and their impact on ESG ratings: An evidence from China," Economics Letters, Elsevier, vol. 232(C).
    36. Tomohiro Ando & Matthew Greenwood-Nimmo & Yongcheol Shin, 2022. "Quantile Connectedness: Modeling Tail Behavior in the Topology of Financial Networks," Management Science, INFORMS, vol. 68(4), pages 2401-2431, April.
    37. Nguyen, Thi Thu Ha & Naeem, Muhammad Abubakr & Balli, Faruk & Balli, Hatice Ozer & Vo, Xuan Vinh, 2021. "Time-frequency comovement among green bonds, stocks, commodities, clean energy, and conventional bonds," Finance Research Letters, Elsevier, vol. 40(C).
    38. Eftichios S. Sartzetakis, 2021. "Green bonds as an instrument to finance low carbon transition," Economic Change and Restructuring, Springer, vol. 54(3), pages 755-779, August.
    39. Pham, Linh & Do, Hung Xuan, 2022. "Green bonds and implied volatilities: Dynamic causality, spillovers, and implications for portfolio management," Energy Economics, Elsevier, vol. 112(C).
    40. Smimou, K. & Khallouli, W., 2016. "On the intensity of liquidity spillovers in the Eurozone," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 388-405.
    41. Lin, Boqiang & Su, Tong, 2022. "Green bond vs conventional bond: Outline the rationale behind issuance choices in China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    42. Dorfleitner, Gregor & Eckberg, Jens & Utz, Sebastian, 2023. "Greenness ratings and green bond liquidity," Finance Research Letters, Elsevier, vol. 55(PA).
    43. Muñoz Mendoza, Jorge A. & Ferreira, Guillermo & Márquez Sanders, Vicente A., 2023. "Liquidity spillovers in the global stock markets: Lessons for risk management," Global Finance Journal, Elsevier, vol. 58(C).
    44. Ren, Xiaohang & Li, Yiying & yan, Cheng & Wen, Fenghua & Lu, Zudi, 2022. "The interrelationship between the carbon market and the green bonds market: Evidence from wavelet quantile-on-quantile method," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    45. Tao Huang & Fei Wu & Jing Yu & Bohui Zhang, 2020. "Investor protection and the value impact of stock liquidity," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(1), pages 72-94, February.
    46. Wu, Ruirui & Li, Bin & Qin, Zhongfeng, 2024. "Spillovers and dependency between green finance and traditional energy markets under different market conditions," Energy Policy, Elsevier, vol. 192(C).
    47. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    48. Li, Houjian & Li, Qingman & Huang, Xinya & Guo, Lili, 2023. "Do green bonds and economic policy uncertainty matter for carbon price? New insights from a TVP-VAR framework," International Review of Financial Analysis, Elsevier, vol. 86(C).
    49. Andrikopoulos, Andreas & Angelidis, Timotheos & Skintzi, Vasiliki, 2014. "Illiquidity, return and risk in G7 stock markets: Interdependencies and spillovers," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 118-127.
    50. Wang, Moran & Li, Xuerong & Wang, Shouyang, 2021. "Discovering research trends and opportunities of green finance and energy policy: A data-driven scientometric analysis," Energy Policy, Elsevier, vol. 154(C).
    51. Balli, Faruk & Hasan, Mudassar & Ozer-Balli, Hatice & Gregory-Allen, Russell, 2021. "Why do U.S. uncertainties drive stock market spillovers? International evidence," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 288-301.
    52. Mensi, Walid & Vo, Xuan Vinh & Ko, Hee-Un & Kang, Sang Hoon, 2023. "Frequency spillovers between green bonds, global factors and stock market before and during COVID-19 crisis," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 558-580.
    53. Naeem, Muhammad Abubakr & Karim, Sitara, 2021. "Tail dependence between bitcoin and green financial assets," Economics Letters, Elsevier, vol. 208(C).
    54. Jin, Jiayu & Han, Liyan & Wu, Lei & Zeng, Hongchao, 2020. "The hedging effect of green bonds on carbon market risk," International Review of Financial Analysis, Elsevier, vol. 71(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gao, Yang & Zhou, Yueyi & Zhao, Longfeng, 2024. "Quantile interdependence and network connectedness between China's green financial and energy markets," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1148-1177.
    2. Pham, Son D. & Nguyen, Thao T.T. & Do, Hung X., 2024. "Impact of climate policy uncertainty on return spillover among green assets and portfolio implications," Energy Economics, Elsevier, vol. 134(C).
    3. Huang, Wei-Qiang & Dai, Jing, 2025. "Optimal portfolio selection of China's green bond and stock markets: Evidence from the multi-frequency extreme risk connectedness," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 208-237.
    4. Karkowska, Renata & Urjasz, Szczepan, 2024. "Volatility transmission and hedging strategies across green and conventional stocks in global markets," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    5. Wang, Mei-Chih & Jiang, Peiyun & Chang, Tsangyao, 2025. "Re-examining China and the u.s.’s respective green bond markets in extreme conditions: Evidence from quantile connectedness," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    6. Qi, Xiaohong & Zhang, Guofu, 2022. "Dynamic connectedness of China’s green bonds and asset classes," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    7. Long, Shaobo & Tian, Hao & Li, Zixuan, 2022. "Dynamic spillovers between uncertainties and green bond markets in the US, Europe, and China: Evidence from the quantile VAR framework," International Review of Financial Analysis, Elsevier, vol. 84(C).
    8. Huang, Zishan & Zhu, Huiming & Hau, Liya & Deng, Xi, 2023. "Time-frequency co-movement and network connectedness between green bond and financial asset markets: Evidence from multiscale TVP-VAR analysis," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    9. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2024. "Extreme time-frequency connectedness across U.S. sector stock and commodity futures markets," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1176-1197.
    10. Sheenan, Lisa & Schweers, Koen & Klein, Tony, 2024. "Interactions between sustainable bonds, renewable energy and other financial markets: A macroprudential perspective," Energy Economics, Elsevier, vol. 138(C).
    11. Doğan, Buhari & Trabelsi, Nader & Tiwari, Aviral Kumar & Ghosh, Sudeshna, 2023. "Dynamic dependence and causality between crude oil, green bonds, commodities, geopolitical risks, and policy uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 36-62.
    12. Xu, Danyang & Hu, Yang & Corbet, Shaen & Hou, Yang (Greg) & Oxley, Les, 2024. "Green bonds and traditional and emerging investments: Understanding connectedness during crises," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    13. Khalfaoui, Rabeh & Mefteh-Wali, Salma & Dogan, Buhari & Ghosh, Sudeshna, 2023. "Extreme spillover effect of COVID-19 pandemic-related news and cryptocurrencies on green bond markets: A quantile connectedness analysis," International Review of Financial Analysis, Elsevier, vol. 86(C).
    14. Pham, Linh & Cepni, Oguzhan, 2022. "Extreme directional spillovers between investor attention and green bond markets," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 186-210.
    15. Abakah, Emmanuel Joel Aikins & Wali Ullah, GM & Adekoya, Oluwasegun B. & Osei Bonsu, Christiana & Abdullah, Mohammad, 2023. "Blockchain market and eco-friendly financial assets: Dynamic price correlation, connectedness and spillovers with portfolio implications," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 218-243.
    16. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Doğan, Buhari & Ghosh, Sudeshna, 2023. "Sustainable debt and gas markets: A new look using the time-varying wavelet-windowed cross-correlation approach," Energy Economics, Elsevier, vol. 120(C).
    17. Cepni, Oguzhan & Demirer, Riza & Pham, Linh & Rognone, Lavinia, 2023. "Climate uncertainty and information transmissions across the conventional and ESG assets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    18. Miklesh Prasad Yadav & Priyanka Tandon & Anurag Bhadur Singh & Adam Shore & Pali Gaur, 2025. "Exploring time and frequency linkages of green bond with renewable energy and crypto market," Annals of Operations Research, Springer, vol. 348(3), pages 1547-1572, May.
    19. Munir Khamis & Dalal Aassouli, 2023. "The Eligibility of Green Bonds as Safe Haven Assets: A Systematic Review," Sustainability, MDPI, vol. 15(8), pages 1-27, April.
    20. Wang, Yu & Cheung, Adrian Wai Kong & Yan, Wan-Lin & Wang, Bin, 2025. "Connectedness of China’s green bond and green stock markets at the low- and high-order moments: The role of economic and climate policy uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 78(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000061. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.