Abstract
Green bonds, which are designed to finance for environment-friendly or sustainable projects, have attracted more and more investors’ attention. However, the study in this field is still relatively limited, especially in forecasting the market’s future trends. In this paper, a hybrid model combining CEEMDAN and LSTM is introduced to predict green bond market in China (represented by CUFE-CNI High Grade Green Bond Index). In order to evaluate the performance of our model, we also use EMD to decompose the green bond index. Our empirical result suggests that, compared with EMD-LSTM and LSTM models, CEEMDAN-LSTM is the most accurate model in green bond index forecasting. Meanwhile, we find that indices from the crude oil market and green stock market are both effective predictors, which also provides ground on the correlations between the green bond market and other financial markets.
Highlights
In order to achieve the goal of peak carbon dioxide emission and carbon neutrality, China is attempting to transit to low-carbon economy, leading to the urgent financing demand of many green projects
Three machine learning models are used for forecasting the green bond index, which are CEEMDANLSTM, Empirical Mode Decomposition (EMD)-Long Short-Term Memory Networks (LSTM), and LSTM
In order to evaluate whether the predictors we utilize are reasonable, we apply the method of Grey relational analysis to testify the relationships between one-day-lagged predictors and the closing price of the green bond index
Summary
In order to achieve the goal of peak carbon dioxide emission and carbon neutrality, China is attempting to transit to low-carbon economy, leading to the urgent financing demand of many green projects. The development of various green finance instruments has enjoyed a rapidly growing attention. Green bonds, called climate bonds at times, are viewed as promising green securities to meet the immense capital needs for low-economy projects (Kochetygova and Jauhari, 2014). The first green bond emerged in 2007, when the European Investment Bank announced the raising of money for environment-protecting programs by issuing bonds. Based on statistics from the Climate Bonds Initiative (CBI, 2021), from 2013 to 2020, the international green bond market has developed dramatically, with the amount of green bonds issued each year growing 26 times from approximately 11 billion dollars to over 290 billion dollars. Until the first half of 2021, the cumulative amount of bonds issued has reached 1.3 trillion and the growth rate is still growing. At the end of 2020, the proportion reached 16%, demonstrating the rapid growth of
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