Asymmetric risk spillovers and multiscale interconnectedness in sustainable financial markets: A time-varying frequency analysis

This research investigates the interlinkages and risk spillovers among clean energy stocks, water stocks, green finance instruments (green bonds and green stocks), and the sustainability index over the period November 1, 2013 to October 20, 2023. We adapt and extend the novel dynamic frequency connectedness framework of Chatziantoniou et al. (2023) by introducing a medium-term horizon in addition to short- and long-term bands and by explicitly accounting for the asymmetric effects of positive and negative return shocks. Our empirical findings reveal that the sustainability index is the main transmitter of shocks across the system, while the global bond market plays a relatively minor role. We also show that asymmetric shocks significantly alter spillover dynamics, with positive shocks dominating the short run and negative shocks exerting stronger and longer-lasting impacts during crisis periods such as the COVID-19 pandemic and the Russia-Ukraine war. By uncovering the heterogeneous time-varying nature of these connectedness patterns, the paper advances the sustainable finance literature and offers novel insights for asset allocation, hedging strategies, and systemic risk monitoring in ESG-oriented portfolios.