Oil price shocks, economic policy uncertainty, and green finance: a case of China

This study investigates the long- and short-run effects of crude oil price (COP) and economic policy uncertainty (EPU) on China's green bond index (GBI) using the quantile autoregressive distributed lag model. The empirical results show that COP and EPU produce a significant positive and negative influence on GBI in the long-run across most quantiles, respectively, but their short-run counterparts are opposite direction and only significant in higher quantiles. Thus, major contributions are made accordingly and shown in the following aspects. The findings emphasise the importance of understanding how COP and EPU affect China's green bond market for the first time. In addition, both the long- and short-run effects are captured, but long-run shocks primarily drive the green bond market. Finally, time- and quantile-varying analyses are adopted to explain the nexus between COP and EPU to GBI, which considers not only different states of the bond market but also events that occur in different time periods. Some detailed policies, such as a unified and effective green bond market, an early warning mechanism of oil price fluctuation, and prudent economic policy adjustments, are beneficial for stabilising the green finance market.

Sukuk and bond dynamics in relation to exchange rate

PurposeThis study aims to contribute by expanding the existing literature on Sukuk return and volatility and exploring the implications of the Sukuk-exchange rate interactions.Design/methodology/approachThis study examines the dynamic interactions of Sukuk with exchange rate in 15 countries, employing the Wavelet approach that considers both time and investment horizons.FindingsThe results reveal significant evolving coherence of Sukuk return and volatility with the underlying exchange rate. The relationship is more potent than what this study witnesses in their counterpart bond market. For Sukuk returns, the coherence is negative, whereas it is positive for volatility. Notably, the coherence is strong in the medium to long term and intensifies during extreme economic episodes, especially during the COVID-19 pandemic. These findings are further validated by comparing firm-level matched data for Sukuk and conventional bond.Originality/valueTo the best of the authors' knowledge, this is the first study that reports the dynamic relationship of Sukuk return and volatility with the underlying exchange rate in 15 countries. Collectively, this study unites valuable insights for faith-based active Islamic investors and cross-border portfolio managers.

Religion vs ethics: hedge and safe haven properties of Sukuk and green bonds for stock markets pre- and during COVID-19

PurposeThis study aims to examine the hedge and safe-haven properties of the Sukuk and green bond for the stock markets pre- and during the COVID-19 pandemic period.Design/methodology/approachTo test the hedge and safe-haven characteristics of Sukuk and green bonds for stock markets, the study first uses the methodology proposed by Ratner and Chiu (2013). Next, the authors estimate the hedge ratios and hedge effectiveness of using Sukuk and green bonds in a portfolio with stock markets.FindingsStrong safe-haven features of ethical (green) bonds reveal that adding green bonds into the investment portfolios brings considerable diversification avenues for the investors who tend to take fewer risks in periods of economic stress and turbulence. The hedge ratio and hedge effectiveness estimates reveal that green bonds provide sufficient evidence of the hedge effectiveness for various international stocks.Practical implicationsThe study has significant implications for faith-based investors, ethical investors, policymakers and regulatory bodies. Religious investors can invest in Sukuk to relish low-risk and interest-free investments, whereas green investors can satisfy their socially responsible motives by investing in these investment streams. Policymakers can direct the businesses to include these diversifiers for portfolio and risk management.Originality/valueThe study provides novel insights in the testing hedge and safe-haven attributes of green bonds and Sukuk while using unique methodologies to identify multiple low-risk investors for investors following the uncertain COVID-19 pandemic.

Dynamic relationship between green bonds and major financial asset markets from the perspective of climate change

In recent years, changes in the climate environment have caused a considerable impact on the economy and finance, especially after the signing of the Paris Agreement decided to prevent the further increase in the earth's temperature and smoothly transformed into a low-carbon society, various markets have been affected to varying degrees, and at the same time, green bonds as an emerging environmental protection tool have sprung up and become the focus of many investors and researchers. The emergence and rise of eco-friendly investment opportunities such as green bonds is bound to have an impact on other markets, but little research has been done on their dynamic correlation with the U.S. stock market, crude oil and gold markets, especially in our current period of COVID-19 tensions, it is necessary to explore the dynamics between markets and the risk aversion of green bonds to climate change. In this paper, we study the dynamic correlation between three green investment vehicles (S&P Green Bond, China Green Bond, and Climate Bond) and three major markets, and explore whether the linkage between each market will be affected by economic risks and climate change risks by adding climate risk proxy indicators and economic policy uncertainties. This is not only of guiding significance for investors who are eco-friendly to judge the effectiveness of asset allocation and hedging in investment decisions, but also has certain reference for policymakers and market participants who want to achieve green investment, which will help the market to maintain a stable and smooth transition to a low-carbon economy in the event of pressure.

Information and volatility linkages between real estate, equity, bond and money markets in Australia

PurposeThe purpose of this paper is to examine information and volatility linkages among real estate, equity, bond and money markets in Australia.Design/methodology/approachA novel rational expectations framework of financial contagion (Kodres and Pritsker, 2002), along with a combination of robust statistical methods including simple and dynamic correlations and generalized impulse response (Fereidouni et al., 2014) have been employed using data covering three dynamic pre-pandemic economic cycles, namely, global financial crisis (GFC) period, pre-pandemic housing boom and pre-pandemic housing downturn from 2008 (February) to 2019 (December).FindingsResults reveal information linkages across real estate, equity, bond and money markets through correlations in return and volatilities of these series. Finding indicates that the three financial markets (equity, bond and money markets) are interdependent and integrated through information and volatility linkages during the GFC period and pre-pandemic housing downturn period. Financial markets have stronger associations with real estate market during pre-pandemic housing boom. The findings contribute to the general notion that the performances of three financial markets are closely related to the "boom” phase of the real estate cycle.Originality/valueThis research provides an extension of existing literature regarding the information and volatility contagion of the expanded set of core investment markets in Australia. The findings could assist household buyers and investors in designing strategic investment portfolios/hedging strategies and minimizing asset specific risks through diversification over short-term and long-term. In addition, results could support the maintenance, growth and development of a combination of competitive balanced investment markets including real estate, equity, bond and money markets in post-pandemic economy.

Event studies in international finance research.

Event studies are widely used in finance research to investigate the implications of announcements of corporate initiatives, regulatory changes, or macroeconomic shocks on stock prices. These studies are often used in a single-country setting (usually the U.S.), but little work has yet been conducted in an international context, perhaps due to the complexities inherent in implementing cross-country studies. This paper explores the methodological challenges of conducting event studies in international finance research. We emphasize how scholars should choose an event, select the study period (short vs. long term), estimate abnormal returns, infer statistically whether the event under consideration produces a reliable price reaction, and explore the role of formal and informal institutions in explaining cross-country differences in price reactions. We also provide an extension of event studies to an important but less studied asset class in an international setting - the fixed-income market. We conclude by offering practical recommendations for researchers conducting cross-country finance event studies and identifying opportunities for future research. Given the increasing number of global events, such as the COVID-19 pandemic, Brexit, and the Paris and Trans-Pacific Partnership agreements, we believe our paper is especially timely.

Les études d'événements sont largement utilisées dans la recherche financière pour étudier les implications des annonces d'initiatives d'entreprises, de changements réglementaires ou de chocs macroéconomiques sur les prix des actions. Ces études sont souvent utilisées dans le cadre d'un seul pays (généralement les États-Unis), mais peu de travaux ont encore été menés dans un contexte international, probablement en raison des complexités inhérentes à la mise en oeuvre d'études transnationales. Cet article explore les défis méthodologiques de la conduite d'études d'événements dans la recherche en finance internationale. Nous mettons l'accent sur la manière dont les chercheurs doivent choisir un événement, sélectionner la période d'étude (court ou long terme), estimer les rendements anormaux, déduire statistiquement si l'événement considéré produit une réaction fiable des prix, et explorer le rôle des institutions formelles et informelles dans l'explication des réactions des prix à travers les réactions des prix. Nous proposons également une extension des études d'événements à une classe d'actifs importante mais moins étudiée dans un contexte international - le marché des titres à revenu fixe. Nous concluons en offrant des recommandations pratiques aux chercheurs qui mènent des études d'événements financiers transnationaux et en identifiant les possibilités de recherches futures. Compte tenu du nombre croissant d'événements mondiaux, tels que la pandémie de COVID-19, le Brexit et les accords de Paris et de partenariat transpacifique, nous pensons que notre article est particulièrement opportun.

Los estudios de eventos son ampliamente usados en la investigación financiera para indagar las implicaciones de los anuncios de iniciativas empresariales, cambios regulatorios o choques macroeconómicos en los precios de las acciones. Estos estudios se utilizan a menudo en el marco de un solo país (normalmente EE.UU.), pero todavía se han realizado pocos trabajos en un contexto internacional, quizá debido a las complejidades inherentes a la realización de estudios transfronterizos. Este artículo explora los retos metodológicos de llevar a cabo estudios de eventos en la investigación financiera internacional. Enfatizamos cómo los académicos deben elegir un evento, seleccionar el período de estudio (corto frente a largo plazo), estimar los rendimientos anormales, inferir estadísticamente si el evento en cuestión produce una reacción fiable de los precios, y explorar el papel de las instituciones formales e informales para explicar las diferencias entre países en las reacciones de los precios. También ofrecemos una extensión de los estudios de eventos a una clase de activos importante pero menos estudiada en un entorno internacional: el mercado de renta fija. Concluimos ofreciendo recomendaciones prácticas para los investigadores que realizan estudios de eventos financieros entre países e identificando oportunidades para futuras investigaciones. Dado el creciente número de eventos mundiales, como la pandemia del COVID-19, el Brexit y el Acuerdo de París y el Acuerdo de Asociación Transpacífico, creemos que nuestro artículo es especialmente oportuno.

Estudos de eventos são amplamente utilizados em pesquisas sobre finanças para investigar as implicações de anúncios de iniciativas corporativas, mudanças regulatórias ou choques macroeconômicos nos preços das ações. Esses estudos são frequentemente usados em um único país (geralmente os EUA), mas pouco trabalho foi realizado em um contexto internacional, talvez devido às complexidades inerentes à implementação de estudos entre países. Este artigo explora os desafios metodológicos na condução de estudos de eventos na pesquisa de finanças internacionais. Enfatizamos como acadêmicos devem escolher um evento, selecionar o período de estudo (curto prazo versus longo prazo), estimar retornos anormais, inferir estatisticamente se o evento em análise produz uma reação de preço confiável e explorar o papel de instituições formais e informais na explicação de diferenças entre países nas reações de preços. Também fornecemos uma extensão dos estudos de eventos para uma classe de ativos importante, mas menos estudada em um cenário internacional ­ o mercado de renda fixa. Concluímos oferecendo recomendações práticas para pesquisadores que realizam estudos de eventos em finanças entre países e identificando oportunidades para pesquisas futuras. Dado o número crescente de eventos globais, como a pandemia de COVID-19, Brexit e os acordos de Paris e parceria Trans-Pacific, acreditamos que nosso artigo é especialmente oportuno.

COVID-19 and the forward-looking stock-bond return relationship

The COVID-19 pandemic has caused stock market crashes and collapse of economic activities in many countries. As a result, many investors changed their stock and bond market expectations. This study investigates whether the number of COVID-19 confirmed cases influences the forward-looking stock-bond correlations. We apply a quantile approach that is beneficial to explore non-linear relationships between the forward-looking stock-bond return correlations and the COVID-19 cases. The correlations are estimated using the DCC-GARCH model for 21 financial markets from three regions (North American, Asia-Pacific, and Europe). We present empirical evidence that there are heterogeneous responses across regions and countries. Specifically, the negative stock-bond correlations weaken as the number of COVID-19 cases in the regions of North America (the U.S. and Canada) and Asia-Pacific (Australia and Japan) increases. Our results suggest that the number of COVID-19 cases is not important. Investors sell risky stocks and buy safe Treasury bonds at the beginning of the pandemic, while they adjust their portfolios risk levels when they obtain more information. Our result also highlights that this pattern is not observed in European countries.

Sovereign bonds and flight to safety: Implications of the COVID-19 crisis for sovereign debt markets in the G-7 and E-7 economies

This study investigates the implications of the COVID-19 pandemic for sovereign debt in the G-7 and E-7 economies and explores the notion of sovereign bonds as a safe haven. Using a set of panel regression and dynamic connectedness TVP-VAR approaches, our results reveal that the impact of COVID-19 global case numbers on sovereign bonds has been contingent on the level of the country's financial and economic development. More precisely, our findings suggest that G-7 countries, where economic development is typically higher, have seen a negative effect of the COVID-19 pandemic on sovereign bond yield: sovereign 10-year bond yields declined as the number of COVID-19 global confirmed cases increased in G-7 countries. However, in E-7 countries, where economic growth and development are typically lower, sovereign bond yields responded positively to the initial increase in COVID-19 global confirmed case numbers, but this positive effect is not statistically significant. We also find that the G-7 and E-7 economies have a strong time-varying connectedness in relation to their bond markets and this effect is more pronounced in G-7 economies. Daily Infectious Disease Equity Market Volatility is likely to be the strongest predictor of total connectedness. Concomitantly, we shed new light on the predictive power of the number of COVID-19 confirmed cases and deaths, and the Daily Infectious Disease Equity Market Volatility Tracker on the interdependence of these sovereign bond markets. Overall, this paper highlights the heterogeneous effect of the COVID-19 pandemic on sovereign bond yields in G-7 and E-7 countries and the notion that the developed economies, with their developed sovereign bond markets, are still seen as a safe haven during times of crisis. © 2023 The Authors

Sovereign bonds and flight to safety: Implications of the COVID-19 crisis for sovereign debt markets in the G-7 and E-7 economies

This study investigates the implications of the COVID-19 pandemic for sovereign debt in the G-7 and E-7 economies and explores the notion of sovereign bonds as a safe haven. Using a set of panel regression and dynamic connectedness TVP-VAR approaches, our results reveal that the impact of COVID-19 global case numbers on sovereign bonds has been contingent on the level of the country's financial and economic development. More precisely, our findings suggest that G-7 countries, where economic development is typically higher, have seen a negative effect of the COVID-19 pandemic on sovereign bond yield: sovereign 10-year bond yields declined as the number of COVID-19 global confirmed cases increased in G-7 countries. However, in E-7 countries, where economic growth and development are typically lower, sovereign bond yields responded positively to the initial increase in COVID-19 global confirmed case numbers, but this positive effect is not statistically significant. We also find that the G-7 and E-7 economies have a strong time-varying connectedness in relation to their bond markets and this effect is more pronounced in G-7 economies. Daily Infectious Disease Equity Market Volatility is likely to be the strongest predictor of total connectedness. Concomitantly, we shed new light on the predictive power of the number of COVID-19 confirmed cases and deaths, and the Daily Infectious Disease Equity Market Volatility Tracker on the interdependence of these sovereign bond markets. Overall, this paper highlights the heterogeneous effect of the COVID-19 pandemic on sovereign bond yields in G-7 and E-7 countries and the notion that the developed economies, with their developed sovereign bond markets, are still seen as a safe haven during times of crisis.

Ṣukūk or Bond, Which Is More Sustainable during COVID-19? Global Evidence from the Wavelet Coherence Model

Understanding the co-movement and lag–lead relations among indices is integral to financial decision making. These parameters show the reactiveness of the market towards new information. Understanding them helps to minimize risk and facilitates optimal portfolio diversification. By employing the wavelet coherence econometric model, the authors of this study analyzed the intricate relations among the Bond and Ṣukūk indices using global data belonging to the United States (US), the United Kingdom (UK), Middle East and North Africa (MENA), and Gulf Cooperation Council (GCC) countries. The findings indicated the presence of strong but similar implications of the initial shock of COVID-19 deaths on both Islamic and conventional markets’ volatilities, especially in long-term investment bands (64–128 days). The results oppose the general belief that Islamic finance is more sustainable and less volatile to crises than its traditional counterparts. Moreover, the authors of this study report diverse relationships among bond and Ṣukūk indices throughout the sample periods. We consistently found low correlations in short-term investment bands (4–16), leading to optimal diversification opportunities. However, high correlations were reported due to COVID-19 in the long-term investment bands (128–256), leading to low diversification opportunities for long-term investors.

Can the covid bailouts save the economy?

The covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets. The government has responded with a massive intervention in corporate credit markets. We study equilibrium dynamics of macroeconomic quantities and prices, and how they are affected by this policy response. The interventions prevent a much deeper crisis by reducing corporate bankruptcies by about half and short-circuiting the doom loop between corporate and financial sector fragility. The additional fiscal cost is zero since programme spending replaces what would otherwise have been spent on financial sector bailouts. An alternative intervention that targets aid to firms at risk of bankruptcy prevents more bankruptcies at much lower fiscal cost, but only enjoys marginally higher welfare. Finally, we study longer-run consequences for firm leverage and intermediary health when pandemics become the new normal.

Impact of Global and Domestic Economic Variables on 10-Year Indian Government Bond Yield: An Empirical Study

Many research studies related to the impact of monetary policy and macroeconomic variables have already been conducted, but studies on combining this with global factors and its shocks are very few. To fill this research gap, the paper tries to find out the combined effect of global factors, macroeconomic variables, and monetary policy on 10-year Indian government bond yield using Structural Vector Autoregression (SVAR) and Autoregressive Distributive Lag (ARDL) model. This paper is designed to analyze the impact of various variables on 10-year Indian government bond yield, in the context of its continuous exposure to global factors like oil price shocks and changes in macroeconomic variables. The empirical findings, based on monthly data relating to the period January 2001 to April 2021, suggest that monetary policy has had a considerable impact on bond yields over a long-term horizon, which appears to be consistent with the prevailing Keynes theory. However, the output has the least impact on bond yield. This may be because the monthly data that is used in the study restricts to use GDP. Hence the Index of Industrial Production (IIP) data is used. Further, inflation shocks increase bond yields and global factors like oil price shocks have detrimental effects on bond yields for a long-time horizon of 24-36 months, whereas an increase in the 10-year US government bond yield results in an increase in 10-year Indian government bond yield.

Modeling Distress in US High Yield Mutual Funds Before and During the Covid-19 Pandemic

Research background: In March 2020, when the US financial markets were in the grip of the COVID-19 crisis, the Fed instituted various policies and programs to alleviate stress in financial markets. One such program involved the Fed purchase of securities and ETFs in certain market segments, including high yield bonds. This buying action inspired investors to join the Fed (or front-run the Fed) in the high yield bond market, resulting in the tightening of spreads in that market to historically tight levels.Purpose: In this research we investigate whether investors could have seen any signs of higher liquidity risk in US high yield mutual funds since the beginning of COVID-19 pandemic and avoid it. Theoretically, funds with heightened liquidity risk should have higher historical returns (adjusted for interest rate risk and credit risk) because borne risk requires return as compensation. But because of the unusual market conditions during the COVID-19 pandemic investors could look inside funds (to see what bonds the funds owned) and then avoid funds with holdings known to be less liquid.Research methodology: The study is based on data on US mutual funds from the Morningstar Direct database. The authors made a serial correlation model with an AR(1) process and the lagged effects model vs CAPM model to measure two proxies for liquidity risk for each US high yield mutual fund in our fund universe, in order to identify those funds at particular risk for portfolio illiquidity since the beginning of the COVID-19 pandemic.Results: it is found that the proposed measures may be an effective tool for selecting high yield funds against liquidity risk. Therefore, they should be considered by investors or analysts as a practical tool to identify funds that might be illiquid.Novelty: The study focuses on the liquidity risk in US high yield bond mutual funds before and after the outbreak of the COVID-19 pandemic, which was a crisis situation with implications for liquidity risk. The methods used and results achieved may be a basis for studies of other types of funds and markets outside the USA.

Lending in the Time of Coronavirus

In the twenty-first century, central banks' ability to conduct monetary policy through conventional means (namely, changes to interest rates) has proven limited, forcing central banks to resort to novel and controversial tools to combat economic downturns. In March 2020, when economic activity in the United States came to a screeching halt, the Fed was forced to test out its post-2008 crisis-response toolkit for the first time. In concert with Congress and the Department of the Treasury, the Fed would make more than $454 billion available to financial and nonfinancial businesses, states, and municipalities. Miraculously, leveraging its emergency powers under section 13(3) of the Federal Reserve Act, the Fed would loosen calcifying credit markets across the economy and restore the functioning of the financial system. Almost as quickly as the Fed mounted its heroic response, skepticism surrounding the intervention permeated academic and policy circles alike. With the benefit of hindsight, however, this Note aims to problematize some of the qualms and critiques surrounding the Fed's actions in 2020.

The Impact of Sustainable Bond Issuances in the Economic Growth of the Latin American and Caribbean Countries

There is beyond any doubt that Latin America is one of the most important emerging markets in the world, which has increased its importance in the last decades. In effect, the issues of green, social, and sustainability (GSS) bonds are gaining more and more importance in the Latin American and the Caribbean (LAC) financial markets. They are specifically focused on raising funding for public expenditure programs that contribute to achieving several objectives, such as climate and environmental projects, energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, etc. The main objective of this paper is to provide a literature revision of the evolution of the issuance of GSS bonds in the LAC region and to analyze the economic growth of the countries which issue this type of bond. We will apply multiple linear regression to relate the economic growth of some countries of the LAC region with the variables proposed by the IFC Emerging Market Green Bonds Report (2019). It has been shown that the economic growth of the countries in the LAC region that are issuing GSS bonds is significantly related to the Sovereign Green Issuance (Total Planned), the ratio of Private Credit/GDP, and the Rule of Law Index. However, this research has had the limitation of the scarcity of available data in the LAC markets.

Guest editorial: Special issue on Covid-19 pandemic crisis and Islamic finance

[...]they find that fiscal stimulus to be helpful to reduce volatility in the bond market but ineffective the stock market volatility. Subekti and Rosadi study Shariah-compliant portfolio modelling (Black–Litterman) and perform a study on the Indonesian stock market. 2.2 Covid-19 and Islamic social finance The papers also share recent developments of zakat, infaq, waqf, sustainable and responsible investment (SRI) Sukuk, and other forms of Islamic social finance instruments. Ascarya reveals that Islamic social finance instruments (i.e. zakat, infaq and waqf) could lead to economic recovery post-pandemic with proposed solutions such as medical assistance using zakat-infaq, health-care waqf, a social safety net, and a graduation program using zakat-infaq.

COVID-19 pandemic and risk dynamics of financial markets in G7 countries

Purpose>The purpose of this study is twofold: to examine the effects of the COVID-19 pandemic on the risk dynamics of stock and bond markets in G7 countries;and to examine if the stock-bond risk dynamics can be linked to government measures to contain the pandemic.Design/methodology/approach>To examine the pandemic impact on the risk dynamics of the bond and stock markets, this study chooses G7 countries for their efficient financial market properties. This study uses standard generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) and exponential GARCH (1,1) models to determine the most volatile and sensitive market, most persistent market during the crisis and the leverage effect between stock and bond markets. This study then uses a panel study to investigate whether this volatility in stock and bond markets is affected by the COVID-19 cases and various government responses (fiscal stimulus packages, monetary policy, emergency investment in health care and vaccine investment).Findings>The findings of the study confirm that the bad news of the pandemic is causing higher volatility than good news for all seven stock markets. Canadian stock and bond markets are the most volatile, and Italian bond and stock markets are the most sensitive G7 countries. Japan has shown the highest persistence, and the stock market exhibits higher leverage than the bond market. Fiscal stimulus packages are helping to reduce bond market volatility, but none of these measures are effective in the stock market.Research limitations/implications>The pandemic is still spreading, and the rate at which it spreads wildly will always pose a limitation to any attempt to examine its full effect.Practical implications>Investigation of market volatility will help policymakers and market players formulate the best strategies to overcome and exit the crisis and plan post-pandemic solutions. It provides valuable insights for investors to rebalance their portfolios during highly volatile markets while preserving their risk appetite and investment objectives.Originality/value>The paper provides evidence on the impact of the pandemic-induced crisis and the respective government responses on the volatility of competing capital markets (stock and bond) in countries that are considered most efficient in reflecting news.

Is There an Asymmetric Relationship between Economic Policy Uncertainty, Cryptocurrencies, and Global Green Bonds? Evidence from the United States of America

The environmental degradation and the concern for sustainable development have garnered extensive attention from researchers to evaluate the prospects of green bonds over other traditional assets. Against this backdrop, the current study measures the asymmetric relationship between green bonds, U.S. economic policy uncertainty (EPU), and bitcoins by employing the Nonlinear Autoregressive Distribution Lag (NARDL) estimation technique recently developed by Shin et al. The outcome of the empirical analysis confirms an asymmetric cointegration between EPU, bitcoins, the clean energy index, oil prices, and green bonds. The NARDL estimation substantiates that positive shock in EPU exerts a negative impact on green bonds, whereas a negative shock in EPU increases the performance of green bonds. It implies, in the long run, a 1 percent increase (decrease) in EPU decreases (increases) the performance of green bonds by 0.22 percent and 0.11 percent, respectively. Likewise, the study also confirms a bidirectional relationship between bitcoins and green bonds. A positive shock in bitcoin increases the performance of green bonds and vice versa. In addition, our study also reveals a direct co-movement between clean energy, oil prices, and green bonds. This outcome implies that green bonds are not a different asset class, and they mirror the performance of other asset classes, such as clean energy, oil prices, and bitcoins. The findings offer several implications to understand the hedging and diversification properties of bitcoins, and assist in understanding the role of U.S. economic policy uncertainty on green bonds.

Flights-to-and-from-Quality with Islamic and Conventional Bonds in the COVID-19 Pandemic Era: ICEEMDAN-Based Transfer Entropy

We revisit the flight-to-quality (FTQ) and flight-from-quality (FFQ) occurrences vis-à-vis the stock-bond nexus across differing investment time scales in the COVID-19 era, using a novel technique hinged on a denoised frequency-domain transfer entropy. Our findings divulge that flights, both FTQ and FFQ, could be attained during stress periods. Generally, in the intermediate term of the COVID-19 pandemic, both Islamic and conventional bonds could act as safe havens, diversifiers, and hedges for international equities, and the same could be observed for international equities. We reiterate empirically that flights may improve the financial system’s stability and robustness by allowing diversity to be effective when it is most required. The findings have financial and portfolio implications for investors considering how to deploy their investments in the COVID-19 era. Our findings may impact policymakers’ responses to changes in various asset classes, allowing them to better monitor financial markets and adjust macroeconomic policies.

Does economic policy uncertainty matter to explain connectedness within the international sovereign bond yields?

This paper examines the determinants of the dynamic connectedness between sovereign bond yields in a sample of G7 countries. In addition to the common macroeconomic factors, we focus on the impact of Economic Policy Uncertainty (EPU) on the dynamic connectedness patterns between bond yields. To this end, we first examine the full-sample connectedness among the seven bond yields and examine various features of connectedness using a measure recently proposed by Diebold and Yilmaz (Int J Forecast 28(1):57-66, 2012). To examine the determinants of the dynamic connectedness, we use the panel data model to consider the dynamic net connectedness between the considered bond yields as the endogenous variable. Overall, being the transmitter or recipient of spillovers appears to have independent and different influences depending on each of the two types of sovereign bond yields. Also, the findings support the idea that EPU can create an environment likely to exacerbate the transmission of spillover shocks between two-year sovereign bond yields. Conversely, on the whole, EPU does not appear to affect the connectedness of thirty-year sovereign bond yields in various bond markets. The findings also reveal the significant impacts of real output on how shocks across countries manifest in different ways.