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The impact of economic outlook on green finance: insights from linkages between green and inflation-indexed bonds

Author

Listed:
  • Tn-Lan Le

    (The University of Sydney Business School)

  • John Goodell

    (University of Akron)

  • Rabeh Khalfaoui

    (ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)

  • Emmanuel Joel Aikins Abakah

    (UGBS - University of Ghana Business School - Université du Ghana = University of Ghana)

  • Buhari Doğan

    (International Islamic University Malaysia [Kuala Lumpur])

Abstract

While inflation-indexed bonds focus on mitigating the impact of inflation and preserving the purchasing power of investors, green bonds prioritize investments in environmentally responsible projects. These bond types offer distinct investment opportunities that cater to the diverse preferences and objectives of investors. With this in mind, this study aims to explore the dynamic relationship between inflation-indexed bonds and green bonds using wavelet analysis, quantile regression, and the Diebold-Yilmaz procedures for the period spanning October 2016 to January 2021. By considering green bonds as indicative of green energy outlooks and inflation-indexed bonds as reflective of overall economic conditions, we investigate the hypothesis that inflation-indexed bonds dominate green bonds within a sample of emerging markets. Our findings reveal significant interdependence between green bonds and inflation-indexed bonds across various wavelet time scales. Consistent with recent research, inflation-indexed bonds exhibit a dominant influence on the relationship, while the nature of this dependence alternates between positive and negative. Furthermore, quantile connectedness analysis demonstrates that spillover transmissions are more pronounced during extreme positive and negative market conditions. The outcomes of this study hold relevance for both investors and policymakers alike.

Suggested Citation

  • Tn-Lan Le & John Goodell & Rabeh Khalfaoui & Emmanuel Joel Aikins Abakah & Buhari Doğan, 2023. "The impact of economic outlook on green finance: insights from linkages between green and inflation-indexed bonds," Post-Print hal-04350324, HAL.
    • Handle: RePEc:hal:journl:hal-04350324
    DOI: 10.1007/s10668-023-04153-5
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    2. Wu, Jiawen & Li, Jing-Ping & Su, Chi-Wei, 2024. "Can green bond hedges climate policy uncertainty in the United States: New insights from novel time-varying causality and quantile-on-quantile methods?," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1158-1176.
    3. Mertzanis, Charilaos, 2024. "Central bank policies and green bond issuance on a global scale," Energy Economics, Elsevier, vol. 133(C).

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