Global Green Bond Market Amid Global Turbulence

Amid the recent turbulence in the global economy, it seems very important to continue following the global environmental course. The COVID-19 pandemic, disruptions and overhaul of global supply chains, geopolitical tensions, and energy inflation of 2022 are holding back the progressive development of the world economy, which needs financial resources to continue the energy transition and other sustainable transformations. Green bonds attracted significant funds even before the pandemic. Thus, it seems timely to assess the impact of the main factors of global turbulence on the global green bond market and, based on the available data, predict the probable direction of the development of the global green bond market. The methods of analysis include general scientific, statistical, and econometric methods based on data from the Climate Bond Initiative, the World Bank, and S&P Global—power trend, logarithm, and the least squares method. The analysis showed that the challenges of adapting green bonds to the new global environment are out of the question. During COVID-19, there was a large-scale increase in issues and interest in green bonds caused by government incentives and the global financial market trends during the pandemic. In 2022, additional force majeure and more fundamental factors, such as global inflation and changes in the direction of monetary regulation frameworks in developed countries, have been added to the need to fight global warming. They had the opposite effect. However, econometric modeling shows an upward trend for the global green bond market, at least in the short term. © 2023, The Author(s), under exclusive license to Springer Nature Switzerland AG.

Dynamic connectedness, asymmetric risk spillovers, and hedging performance of China's green bonds

In this paper, we analyze the dynamic connectedness and asymmetric risk spillovers among China's green bonds, bonds, stock, and crude oil markets in terms of magnitude, direction, and patterns by utilizing the DCC-GARCH-t-Copula model. We then evaluate the hedging performance of China's green bonds and compare it before and after the COVID-19 pandemic. Our empirical results demonstrate that, on average, green bonds display significantly lower extreme risk and have weak connectedness with stock and crude oil markets. The spillover effect of green bonds and crude oil risk is particularly pronounced;however, there are weak green bonds-stock risk spillover effects. Subsequent to the COVID-19 outbreak, the green bonds market is more resilient to extreme bonds market declines and offer improved hedging potential for bonds.. Our findings furnish an up-to-date picture and invaluable information for the portfolio, risk management, and hedging strategies for pro-environmental investors in emerging green bonds markets.

Study of impacts of blockchain technology on renewable energy resource findings

Using daily data from the beginning of 2018 to the end of 2022 and the Seemingly Unrelated Regression method, this paper sought to determine the relationship between green and non-green cryptocurrency indices as representative of blockchain technologies on three green bond indices in two periods before the outbreak of COVID-19 and the corona period. The preliminary results confirmed that by spreading the coronavirus, the sensitivity of the green bond market has increased to the gold index. In addition, the green cryptocurrency index (Cardano) significantly impacts green bonds more during the Corona era. The negative effect of the Bitcoin index on the index of green bonds in the Corona era is less than its adverse effect in the pre-corona period. Developing green cryptocurrencies and linking cryptocurrencies and digital green financing are two significant recommended policy implications for scholars and policymakers.

A Wavelet Analysis of the Dynamic Connectedness among Oil Prices, Green Bonds, and CO2 Emissions

Wavelet power spectrum (WPS) and wavelet coherence analyses (WCA) are used to examine the co-movements among oil prices, green bonds, and CO2 emissions on daily data from January 2014 to October 2022. The WPS results show that oil returns exhibit significant volatility at low and medium frequencies, particularly in 2014, 2019-2020, and 2022. Also, the Green Bond Index presents significant volatility at the end of 2019-2020 and the beginning of 2022 at low, medium, and high frequencies. Additionally, CO2 futures' returns present high volatility at low and medium frequencies, expressly in 2015-2016, 2018, the end of 2019-2020, and 2022. WCA's empirical findings reveal (i) that oil returns have a negative impact on the Green Bond Index in the medium term. (ii) There is a strong interdependence between oil prices and CO2 futures' returns, in short, medium, and long terms, as inferred from the time-frequency analysis. (iii) There also is evidence of strong short, medium, and long terms co-movements between the Green Bond Index and CO2 futures' returns, with the Green Bond Index leading.

India's low carbon value chain, green debt and global climate finance architecture

The paper critically evaluates the bottlenecks inherent in India's low carbon value chain that is financed by green bonds and related debt securities. The paper identifies three cardinal limitations of the value chain viz. unviable carbon mitigation projects, insufficient market competitiveness of green bonds issued from India and the inability of refinancing institutions to securitise their liabilities and overcome the problem of asset-liability mismatch. It is argued that a climate financial architecture that overcomes these limitations provides important lessons to the ongoing global efforts to strengthen the financial mechanisms laid down by the Paris Agreement on Climate Change. Extended summary: The paper explores India's ‘low carbon value chain' in the light of the developments that have taken place in India's climate finance landscape in the years following the adoption of the Paris Agreement on Climate Change. Shrinking budgetary resources, paucity of fiscal resources and the rise of non-performing assets in the debt portfolios of banks have compelled India's financial institutions to mobilise financial resources through debt markets. This trend has been accentuated by the advent of COVID-19. However, despite adhering to internationally laid down quality standards, the ‘on-shore' and ‘off-shore' green bonds issued by India's refinancing and development financial institutions suffer from insufficient liquidity in secondary markets. The yields clocked by these bonds compare unfavourably with Government Bonds of comparable maturities. The resultant tensions in the ‘low carbon value chain' can be obviated if refinancing institutions finance bankable climate mitigation projects which enjoy auxiliary revenue streams from carbon and renewable energy credits generated from carbon markets. It is further argued that supportive policy measures that enable the country's Central Bank to conduct market support operations involving green bonds and empower lending institutions to securitise their loan assets, can go a long way to enlarge the scope of debt securities in India's climate financing plan. It is stated that the new climate finance architecture proposed for India holds vital lessons for the ongoing efforts of the global community to provide teeth to the climate finance and carbon market provisos of the Paris Agreement on Climate Change. © 2023

Effect of green bonds, oil prices, and COVID-19 on industrial CO2 emissions in the USA: Evidence from novel wavelet local multiple correlation approach

This study explores the effect of green bonds, oil prices, and the coronavirus disease 2019 (COVID-19) pandemic on industrial carbon dioxide (CO2) emissions. In this context, this study examines the United States of America (USA), which is the biggest economy in the world, uses weekly data between March 6, 2020 and September 30, 2022, and applies a novel wavelet local multiple correlation (WLMC) approach under time-varying and frequency-varying perspective. The novel empirical findings shows that (i) there is a strong negative (positive) co-movement between industrial CO2 emissions and green bonds in the short-run (long-run);(ii) there is a strong positive (negative) co-movement between industrial CO2 emissions and oil price in the medium-run (long-run);(iii) there is a strong negative (positive) co-movement between industrial CO2 emissions and the COVID-19 pandemic in the medium-run (long-run);(iv) the oil price is the dominant factor, whereas there are changing effect of the variables on each other at different times and frequencies;and (vi) overall, there are long-run asymmetric and dynamic correlations between industrial CO2 emissions and variables. Hence, the empirical results highlight the asymmetric, time-varying, and frequency-varying effects of green bonds, oil prices, and the COVID-19 pandemic on industrial CO2 emissions by presenting fresh and novel evidence. Moreover, the study proposes policy implications for the USA government. © The Author(s) 2023.

The Eligibility of Green Bonds as Safe Haven Assets: A Systematic Review

This study follows Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) to examine the existing literature on the connectedness of green bonds with other markets as an attempt to highlight the effectiveness of green bonds in risk management and the benefits associated with incorporating green bonds in investment portfolios. An extensive search of relevant research papers to the scope of the review led to the identification of 31 articles published by February 2022. Our analysis traces the evolution of studies on green bonds' interactions with other markets, the methodologies and data frequencies used for cross-market relations analysis, and the role of green bonds in portfolio risk management (diversifier, hedge, and safe-haven) in normal and extreme market conditions. The study reports several interesting findings. First, green bonds can be a strategic safe-haven avenue for investors in stocks, dirty energy stocks, and the foreign exchange market in the US and China in extreme market downturns. Second, green bonds demonstrated hedging properties against spillovers from Bitcoin, forex, soft commodities, and CO2 emission allowance. Third, the role of green bonds in the markets of natural gas, industrial metals, and crude oil is limited to a portfolio diversifier in different investment horizons. Fourth, green bonds had no diversification or hedge benefits for investors in conventional bonds. Fifth, the interrelationships between green bonds and most markets' understudy were influenced by macroeconomic and global factors such as the COVID-19 pandemic, economic policy uncertainty, OVX, and VIX. Our review of the literature also facilitated identification of future research topics. The outcome of the review offers insightful information to investors in green bonds in risk management and assets allocation. Policy makers can benefit from this review in effective policy legislation for the advancement of the green bonds market and acceleration of a smooth transition to a net zero emission economy.

The "Greenium” in Green Bonds: How Did It Change with COVID-19?

This paper focuses on the study of the "greenium”, i.e., the premium on Green Bonds (GBs) vs. Traditional Bonds (TBs) whereby investors accept lower yields of GBs vs. TBs, which is caused by the important difference between them with reference to their contribution to the green transition, specifically paying attention to the influence of the COVID-19 pandemic on it. The conjecture of this paper is that the negative shock of rates due to the pandemic crisis has increased the greenium, as it has also increased the interest in projects of the green transition. In addition, a hypothesis is made that the risk of breaking the green promises might be higher for corporations than for governments and, hence, that the greenium would be lower for corporate GBs than for government GBs. Finally, the possibility that the post-pandemic changes of the greenium might vary depending on individual GBs' liquidity is considered. The empirical analyses provide support for the first two hypotheses but not for the third one. © 2023 by the authors.

Safe-haven properties of green bonds for industrial sectors (GICS) in the United States: Evidence from Covid-19 pandemic and Global Financial Crisis

The Covid-19 pandemic unfolds the vulnerability of financial markets at the time of rare disasters. To hedge the mean-dependent risk, investors rely upon traditional assets such as gold;however, the tail-dependent risk, especially during market turbulence, considerably dampened the hedging effectiveness. On the contrary, green bonds emphasize sustainable investment in the long term and have become an inevitable tool to hedge against financial risks, and climate risks, and rare disasters. Thus, this study explores the hedging and safe haven aspects of the bullish market of green bonds against bearish markets of industry sectors across the United States (U.S.) over the period of 1st January 2008 to 7th May 2021, including the Global Financial Crisis and the Covid-19 pandemic. The findings of cross-quantilogram analysis disclose that green bonds reap diversification benefits during overall market conditions as well as market turmoil, hence confirm the safe-haven behavior of green bonds. Furthermore, our results disclose that the potential role of investment in green bonds can reboot the economy without affecting low-carbon transition targets. © 2023 Elsevier Ltd

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.

Investigating financialization perspective of oil prices, green bonds, and stock market movement in COVID-19: empirical study of E7 economies.

The drastic influence of the COVID-19 crisis halted almost every industry and economy and made the quality of doing business in the oil industry and stock markets large. Also, COVID-19 diminished financial and economic performance to a greater extent. This issue still warrants modern solutions. Thus, preceding research inquired about the financialization perspective of oil prices, green bonds, and stock market movement in the COVID-19 crisis. For this, E7 economies' data is selected to analyze the empirical findings of the research. The findings revealed that the green bonds have a weak link to crude oil, a weak correlation to stocks in the E7 settings, and a strong correlation to gold prices. While stock market return is also little correlated in COVID-19, stock volatility is highly significant in both directions with oil prices and green bonds movement. The hedging ratio has also shown a significant connection with oil prices and green bonds movement in determining the financialization of E7 economies. Hence, the study directs the implications for important industrial planning and policymaking decisions.

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.

Market reaction to macroeconomic anouncements: green vs conventional bonds

There has been an increased interest in literature to examine the risk and returns between green and conventional bonds during the last decade. However, the existing literature is silent regarding investigating green bonds and their reactions to regional and global shocks. We attempt to close this gap by gathering green and conventional bonds data issued by the same firms. Using data from 262 firms that issue both sets of bonds and trade in the same market, we are able to control/eliminate for firm-specific factors that can impact the bond spreads. Upon introducing US and EU macroeconomic announcements and economic uncertainty, we find that the green bonds are more resilient from specific shocks, when compared to conventional bonds. We further expand our study to systematically assess the impact of the Covid-19 pandemic on both bonds. Our comprehensive findings suggest an increase in green bonds' uptake post-Covid-19 pandemic, and its significant evolvement compared to pre-Covid-19 proves green bonds popularity. Our result shows greater resilience of green bonds from specific Covid-19 shocks and uncertainties.

Perspectives by green financial instruments – a case study in the Hungarian banking sector during COVID-19

Recently, the management of the green financial sector has been widely influenced by global socio-economic concerns such as the COVID-19 pandemic and the energy crisis. The purpose of this paper is to evaluate, besides their environmental attitude, what opinions and experiences the affected stakeholders have about the sustainability-related processes in the Hungarian banking sector in the early 2020s. To assess this subject extensively, two questionnaire surveys were conducted in two consecutive years (2020/2021 and 2021/2022), involving 600 and 1,600 participants randomly chosen from banking databases, respectively. The results indicate that both residential and corporate participants have various but broadening knowledge of green financial instruments. Hungarian residential customers have pointed out the inconveniences of the most popular green loan product (Green Home Program), while there appears a distinct difference in green investment preferences between the two groups of respondents. Hungarian stakeholders are quite eco-conscious, and so are banks adopting sustainability and climate risk assessment actions, however, the implementations have much potential to exploit. Respondents also identify the energy crisis-related risks, while their trust in the banking system remains high even under volatile circumstances. These findings demonstrate that the Hungarian green banking sector has a high degree of crisis resistance with residential and corporate stakeholders behind giving trust and thereby the driving force toward the successful green transition. © Anita Boros, Csaba Lentner, Vitéz Nagy, Dávid Tőzsér, 2023.

Interdependence of clean energy and green markets with cryptocurrencies

The adverse effects of the high-power energy consumption by cryptocurrencies on the environment and sustainability have raised the interest of a large body of policymakers and market participants. We apply a network approach to investigate the dependency across clean energy, green markets, and cryptocurrencies from 1 January 2018 to 30 November 2021. Our results indicate that sustainable investments, particularly DJSI and ESGL, play a pivotal role in the network system during the COVID-19 crisis. We find that green bonds are the least integrated with the other financial markets, suggesting their significant role in providing diversification benefits to investors. Rolling windows estimation shows that the dependency across the examined marked increased sharply during the COVID-19 crisis, especially between March 2020 and March 2021, after which it faded and became weak and stable until the end of the sample period. Results of the centrality network are consistent with the dependency network analysis. © 2023

The Covid pandemic in the market: infected, immune and cured bonds

In this paper, I analyze the developments in the euro-area primary bond market during the Covid-19 pandemic. The most surprising effect is the significant increase in the share of investment-grade bonds from 15% to 40%. Over the first phases of the crisis (from mid-February to mid-March), these bonds enjoyed a negative premium of 60 to 80 basis points. However, the premium disappeared when the market conditions further deteriorated. There is also evidence that the firms most exposed to the changes in the business model brought about by the pandemic experienced an increase in the cost of issuance of around 30 basis points. By contrast, there is no evidence that supports the existence of an increased cost for companies headquartered in countries with weak public finances, or evidence of a premium in favor of green bonds that were expected to be the backbone of a possible "green recovery”. © 2023, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.

Dynamic connectedness of green bond with financial markets of European countries under OECD economies

This paper examines the dynamic connectedness between green bonds and OECD financial markets of European countries. The study is conducted on daily price of green bonds and selected European stock markets from January 27, 2015, to August 4, 2021. Top ten European countries namely Luxembourg, Switzerland, Norway, Denmark, Germany, Netherlands, Iceland, Austria, Sweden, and Belgium are included within the OECD economies. The study uses Diebold and Yilmaz and Barunik & Krehlic tests to examine the connectedness between the economies and green bonds in short, medium, and long term. Result exhibits volatility across all frequency cycles. Brussel Stock Exchange and Euronext Amsterdam are identified as high-risk markets in the OECD European market. Evidence emerging from this study advocate the inclusion of green bonds in these financial markets for shorter time periods only. Results from this study are expected to have practical implications for portfolio managers, investors, and market regulators, suggesting incorporation of green bonds in investor portfolio for efficient diversification of risk. © 2022, The Author(s).

Oil prices and the green bond market: Evidence from time-varying and quantile-varying aspects

This paper investigates the link between crude oil prices (COP) and green bonds through a rolling-window Granger-causality test. The positive, negative, and uncorrelated impacts of COP on the green bond index (GBI) are captured with the same sample. The positive effects show that the prosperity of the green bond market is promoted by the high COP, demonstrating that green bonds can avoid shocks from COP. Nevertheless, due to the high profits of the green energy industry and the excess supply on the oil market, the negative impact between COP and GBI is also found. These results are not completely consistent with the price correlation model between oil and green bonds. Furthermore, the positive impact of the GBI on COP shows that green bonds cannot moderate the oil crisis due to COVID-19, instability in the international political environment, and the immaturity of green bonds market. In addition, depending on the quantile Granger-causality test, only high COP affects the GBI, and this asymmetric feature is attributed to increasing production costs and environmental protection pressure. Understanding the nexus between COP and the GBI is of practical significance for bond issuers, regulators, and investors. © 2022 Borsa Ä°stanbul Anonim Åžirketi

Can the green bond market enter a new era under the fluctuation of oil price?

This paper investigates how oil price (OP) influences the prospects of green bonds by utilising the quantile-onquantile (QQ) method and researching the interactions between OP and green bond index (GBI) from 2011:M1 to 2021:M11. We find that impacts from OP on the GBI are positive in the short run. The positive effects indicate that high OP can promote the development of the green bond market, indicating that green bonds can be considered an asset to avoid OP shocks. However, in the medium and long term, there is a negative impact due to the oversupply of the oil market and the increase in green energy industry profits. These results are identical to the supply and demand-based correlation model of green bonds and oil price, which underlines a specific effect of OP on GBI. The GBI effect on OP is consistently positive across all quantiles. It indicates that green bonds cannot be considered efficient measures to alleviate the oil crisis due to the instability of the Middle East COVID-19 and the small scale of green bonds. The issuers of green bonds can make decisions based on OP. Understanding the relationship between OP and GBI is also beneficial for investors. © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.

Do oil shocks affect the green bond market?

This study examines the predictive power of oil shocks for the green bond markets. In line with this aim, we investigated the extent to which oil shocks could be used to accurately make in- and out-of-sample forecasts for green bond returns. Three striking findings emanated from our results: First, the three types of oil shock are reliable predictors for green bond indices. Second, the performances of the predictive models were consistent across the different forecasting horizons (i.e. H = 1 to H = 24). Third, our findings were sensitive to classifying the dataset into pre-COVID and COVID eras. For instance, the results confirmed that the predictive power of oil shocks declined during the crisis period. We also discuss some policy implications of this study's findings. © 2022 The Author(s)