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

Abstract

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.

An investigation on dynamic connectedness of commodity market with financial market during the Russia–Ukraine invasion

“…The terms "alpha 1" and "beta 1" denote ARCH and GARCH, respectively. Alpha indicates whether there is variance in the short run or not, depending on past disruptions whereas beta is a measure of volatility persistence that quantifies the impact of shocks on the market's long-term conditional correlation (Yadav et al, 2022(Yadav et al, , 2023. To confirm volatility persistence the alpha1 and beta 1 values need to be significant and positive at a 5% significance level.…”