The beneficial role of green bonds as a new strategic asset class: Dynamic dependencies, allocation and diversification before and during the pandemic era

The paper proposes a full comprehensive analysis of green bond diversification benefits, their co-movement with multiple market indices, and the corresponding implications for portfolio allocation. Based on a time frame of seven years, divided into four sub-periods, the co-movements of green-bond indices, i.e. Solactive Green Bond Index and Bloomberg Barclays MSCI Green Bond Index, and the stock/bond market have been described, shedding light on the connections with sectors most affected by the Covid-19 pandemic. The Solactive Green Bond Index is found to provide the greater diversification benefit of the two green-bond indices, on average during the seven years and also during the pandemic. Allocation strategies and risk performances have also been analyzed to assess the impact of green-bond indices on otherwise traditional portfolios;their diversification power is discussed by use of traditional measures and an additional behavioral approach, drawing attention to its evolution in time and its consistency in terms of diminished risks and increased returns. Portfolios constructed with the inclusion of green bonds prove preferable in terms of risk, in all periods and for all strategies, while the superiority of returns depends on the allocation strategy. © 2023 Elsevier B.V.

Causal Relationships of the Stock Market with other Asset Classes: An Indian Perspective

The recent decade has seen a rapid rise in risk assets. Stocks, commodities, and cryptocurrencies have exploded to the upside. Global central banks have maintained interest rates at record low levels following the COVID-19 crisis. This has further acted as tailwinds for risky assets. With asset classes being increasingly interlinked with each other, useful information can be gained by studying these inter-relationships. This paper looks at the interrelationships between the Indian stock market Nifty index and some key asset classes such as Gold, Crude oil, short-term and long-term Indian government bond yields, the USD/INR exchange rate, and the cryptocurrency Bitcoin for the period January 2011 to December 2020. Co-integration analysis suggests the absence of long-run relationships between the Nifty and the asset classes studied. Granger causality analysis reveals bi-directional causality between Nifty and USD/INR and Crude oil returns. Gold returns, Bitcoin returns, and changes in short and long-term government bond yields uni-directionally granger-caused Nifty returns. Impulse response analysis reveals that shocks in each of the independent variables caused a shock in the Nifty that persisted for 1 to 3 weeks. Traders in the Nifty can monitor these shocks and accordingly fine-tune their strategies for possible moves in the Nifty. © 2022 ACM.