Dynamic spillovers and portfolio implication between green cryptocurrencies and fossil fuels.

Abstract

Are green investments decoupled from the dirty investment such as the fossil fuel markets? We address this issue by extending the literature on environmental, social, and governance (ESG) assets by examining the dynamic relationship between fossil fuels and digital ESG assets proxied by green cryptocurrencies using the TVP-VAR(Time-varying parameter vector auto regression) spillover framework. Furthermore, we analyze the hedging attributes of green cryptocurrencies and fossil fuels in a minimum connectedness framework. The main findings are as follows: First, green cryptocurrencies are the main shock transmitters in all asset systems. Second, the dynamic connectedness between green cryptocurrencies and fossil fuels increased during the COVID-19 and Russia-Ukraine conflicts. Third, green cryptocurrencies have shown considerable hedging effectiveness against the fossil fuels. Our study has important implications for investors, regulators, and policy makers, such as shifting to green cryptocurrencies, regulation of carbon footprint, and promoting eco-friendly assets.