The impact of containment measures and monetary and fiscal responses on US financial markets during the COVID-19 pandemic.

This paper analyses the effects of containment measures and monetary and fiscal responses on US financial markets during the Covid-19 pandemic. More specifically, it applies fractional integration methods to analyse their impact on the daily S&P500, the US Treasury Bond Index (USTB), the S&P Green Bond Index (GREEN) and the Dow Jones (DJ) Islamic World Market Index (ISLAM) over the period 1/01/2020-10/03/2021. The results suggest that all four indices are highly persistent and exhibit orders of integration close to 1. A small degree of mean reversion is observed only for the S&P500 under the assumption of white noise errors and USTB with autocorrelated errors; therefore, market efficiency appears to hold in most cases. The mortality rate, surprisingly, seems to have affected stock and bond prices positively with autocorrelated errors. As for the policy responses, both the containment and fiscal measures had a rather limited impact, whilst there were significant announcement effects which lifted markets, especially in the case of monetary announcements. There is also evidence of a significant, positive response to changes in the effective Federal funds rate, which suggests that the financial industry, mainly benefiting from interest rises, plays a dominant role.

Extreme Connectedness between Green Bonds, Government Bonds, Corporate Bonds and Other Asset Classes: Insights for Portfolio Investors

This paper aims to examine the connectedness between green and conventional assets, particularly during the period of economic downturn. Specifically, we examine quantile-based time-varying connectedness between the green bond market and other financial assets using quantile vector autoregression (QVAR) from 9 March 2018 to 10 March 2021. We use daily prices of S&P U.S. Treasury Bond Index, S&P US Aggregate Bond Index, S&P US Treasury Bond Current 10Y Index, S&P 500 Bond Index, S&P 500 Financials index, S&P 500 Energy Bond Index and S&P 500, giving a total of 784 observations, and using Composite Index as a representative of conventional assets classes and S&P Green Bond Index to denote the green bond market. Results shows the connectedness between green bonds and the conventional asset classes intensified during the outbreak of the Coronavirus pandemic (COVID-19) as investors shifted their investment towards fixed income assets due to the plunge in the prices of stocks and commodities. The results also shows that green bonds are strongly connected with treasury bonds, aggregate bonds and bond index, as they share similarities with respect to issuance, risk and governance. Connectedness is weak in the case of composite index and energy bond index, as their prices do not have substantial influence on the green bond market. The study highlights the hedging and diversification benefits of green bonds. We have several implications for portfolio managers, policy makers and researchers.

Quantile risk spillovers between energy and agricultural commodity markets: Evidence from pre and during COVID-19 outbreak

The spillover effect is a significant factor impacting the volatility of commodity prices. Unlike earlier studies, this research uses the rolling window-based Quantile VAR (QVAR) model to describe the conditional volatility spillover between energy, biofuel and agricultural commodity markets. Since the magnitude of connectedness and spillover effects may switch between bearish and bullish market states over time, a QVAR model is a relatively realistic and appropriate approach to capture the connectedness as compared to the mean-based approaches of Diebold and Yilmaz (DY;2009, 2012, & 2014) which are mostly used in the literature. To this end, we employ volatility estimates by using the realized variance advanced by Parkinson (1980). Specifically, we investigate the time-varying volatility spillovers and connectedness among agricultural markets (wheat, corn, sugar, soyabean, coffee, and cotton), energy markets (gasoline, crude oil, natural gas) and biofuel (ethanol) markets from January 12, 2012 to May 10, 2021. By comparing our empirical analysis with results from the DY spillover model, we establish that connectedness is stronger in the left and right quantiles than those in the mean and median of the conditional distribution, emphasizing the importance of systematic risk spillovers during extreme market movements. Furthermore, results find that volatility spillovers and connectedness in the right tail is higher than in the left tail. In particular, we document significant volatility spillovers from agricultural markets to energy markets during extreme markets conditions and observe the dominance of agricultural markets over energy markets. To ascertain the impact of COVID-19 on the volatility of markets examined, we divide our sample into sub-samples and observe significant variation in the level of volatility spillovers and connectedness across the markets before and during the outbreak of COVID-19. Finally, some useful implications are summarized for investors' portfolios and risk avoidance.

Tail risk dependence, co-movement and predictability between green bond and green stocks

This paper examines the coherence of extreme returns between green bonds and a unique set of green stocks. We use the novel quantile cross-spectral coherence methodology of quantile spectral coherency model, cross-quantilogram correlation approach, windowed time-lagged cross-correlation, and windowed scalogram difference models as estimation techniques. The study period spans from 28 November 2008 to 23 September 2020. Our measure of green stocks comprises the constituents of the MSCI Global Environment Price Index: Alternative Energy, Green Building, Pollution Prevention or Clean Technology while our green bond market is proxied by S&P Green Bond Index. We find the dependency between Green Bonds and green stocks to be weak, and this is high during market downturn periods in the short- to medium-term dynamics. This suggests that Green Bonds do act as a hedge, diversifier, or safe-haven instrument for environment portfolio in the short-term, medium-term and long-term dynamics during bearish market conditions. We conclude that green bonds and green stocks are two distinct asset classes with a distinct risk-return profile despite their common climate-friendly nature.