Multiscale Nonlinearity In Energy Commodities And Bond Markets: Mfdcca Via Modwt And Granger Causality

In this study, we examine the multifractal characteristics and nonlinear interactions between the major energy commodities (crude oil, natural gas, heating oil) and the traditional and green bond markets. Using multifractal detrended cross-correlation analysis (MFDCCA) in conjunction with the maximum overlap discrete wavelet transform (MODWT) and nonlinear Granger causality tests, we discover complex dynamics and potential causality within these markets. The results of the study show strong multifractal cross-correlations between green bonds and traditional bonds with energy commodities. Green bonds are found to have a more pronounced multifractal nature compared to traditional bonds, suggesting different market dynamics in response to energy commodity price changes. This strategy advances the understanding of market movements and provides insights for risk mitigation and formulating investment plans. Our findings offer novel insights for investors, policymakers, and academics, highlighting the intricate relationships that exist between energy commodities and financial markets, with implications for portfolio diversification, risk management, and sustainable finance strategies.