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Funding liquidity risk and the volatility of U.S. municipal green bonds during the COVID-19 pandemic

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  • Kocaarslan, Baris

Abstract

This study adopts the funding liquidity–market liquidity model developed by Brunnermeier and Pedersen (2009) to investigate the relationship between funding liquidity risk and the volatility of U.S. municipal green bonds during the COVID-19 crisis, while also accounting for other potential risk factors. We observe that during high levels of municipal green bond volatility, the effect of funding liquidity risk on volatility is more pronounced than during periods of low municipal green bond volatility. Moreover, the response of municipal green bond volatility to a shock in the funding liquidity risk is stronger compared to a shock in other risk factors.

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  • Kocaarslan, Baris, 2023. "Funding liquidity risk and the volatility of U.S. municipal green bonds during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 58(PD).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323009327
    DOI: 10.1016/j.frl.2023.104560
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    More about this item

    Keywords

    Funding liquidity risk; Municipal green bonds; Volatility; Crisis times; Financial stress;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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