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Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics

Author

Listed:
  • Tiago Trancoso

    (ProMetheus—Instituto Politécnico de Viana do Castelo, Rua Escola Industrial e Comercial Nun’Álvares, Viana do Castelo 4900-347, Portugal)

  • Sofia Gomes

    (Research on Economics, Management and Information Technologies, REMIT, Portucalense University, Rua Dr. António Bernardino de Almeida 541, 4200-072 Porto, Portugal)

Abstract

This study investigates the impact of green equity indices on global market dynamics using a time-varying parameter vector autoregression (TVP-VAR) model. We uncover a significant shift in the role of the global market, transitioning from a shock transmitter to a shock receiver, as the influence of green finance grows. By directly comparing green equity indices with their corresponding global parent indices, we adopt a global perspective that transcends the limitations of studies focusing on specific regions, such as the USA, China, or Europe. This novel approach minimizes the potential biases in the transmission channels within regional markets, enabling a more comprehensive understanding of the relationship between green finance and global market dynamics. Moreover, by focusing on equity indices we ensure a consistent comparison of financial instruments, avoiding the complexities that arise when comparing different asset classes such as green bonds and conventional equities. For global investors, our results highlight the importance of dynamic and flexible hedging strategies that adapt to the distinct characteristics of green assets and their growing influence on the global market. Risk managers should incorporate these time-varying spillover effects into their models to better assess and mitigate potential risks. Policymakers should consider the growing influence of green finance on the broader market when formulating regulations and incentives to support sustainable investing, as our findings underscore the increasing importance of this sector in shaping market dynamics.

Suggested Citation

  • Tiago Trancoso & Sofia Gomes, 2024. "Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics," Economies, MDPI, vol. 12(4), pages 1-16, April.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:4:p:83-:d:1371490
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    References listed on IDEAS

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    1. Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Mokni, Khaled, 2020. "Relationship between green bonds and financial and environmental variables: A novel time-varying causality," Energy Economics, Elsevier, vol. 92(C).
    2. 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).
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    Cited by:

    1. Tran Thi Mai Hoa & Le Thanh Ha, 2026. "Dynamic connectedness between equity market volatility and green assets dynamic: fresh findings from deep learning TVP-VAR," Journal of Asset Management, Palgrave Macmillan, vol. 27(2), pages 1-15, June.
    2. Motegi, Kaiji & Sugano, Saki, 2025. "Cross-regional spillover effects of sustainability indices: A heteroscedasticity-robust VAR approach," International Review of Financial Analysis, Elsevier, vol. 108(PA).
    3. Nadeem, Nasir & Jadoon, Imran Abbas & Aslam, Faheem & Ferreira, Paulo, 2025. "Time-frequency connectedness and volatility spillovers among green equity sectors: A novel TVP-VAR frequency connectedness approach," Energy, Elsevier, vol. 328(C).
    4. Xiaohuan Li & Chenggang Wang & Dongrong Li & Dongxue Yang & Fan Meng & Yuan Huang, 2024. "Environmental Regulations, Green Marketing, and Consumers’ Green Product Purchasing Intention: Evidence from China," Sustainability, MDPI, vol. 16(20), pages 1-24, October.
    5. Naifar, Nader, 2026. "Do climate risk and ESG sentiment predict clean energy performance? Evidence from quantile-on-quantile analysis," Research in International Business and Finance, Elsevier, vol. 84(C).

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