Dependence and risk spillovers between green bonds and clean energy markets

Abstract

In this study, we first examine the dynamic dependence structure between green bonds (GBs) and several global and sectoral clean energy (CE) markets by using several time-invariant and time-varying copula approaches over the period from 5 July 2011 to 24 February 2020. We then apply conditional value-at-risk (CoVaR) and delta CoVaR to capture downside and upside risk spillovers from CE to GB, and vice versa. Our empirical analysis shows that there is positive time-varying average and tail dependence between GBs and CE stock markets. Moreover, extreme downward or upward movements in the CE stock market have a spillover effect on the GB market, and vice versa. Furthermore, the risk spillover between these markets is asymmetric. These results make an important contribution to policymakers and environmentally friendly investors with GB positions by adding unexpected tail losses. It is critical for the GB investors to invest their capital effectively in economic activities that are consistent with a low-carbon economy.