Green bonds and US shale gas prices: Evidence from a novel time-varying causality

Abstract

This paper provides a new perspective on the green bond market (measured by GBI) and the US shale gas price (measured by SGPI). The leading method for testing the mutual influence between GBI and SGPI, the bootstrap subsample rolling causality test, is a novel application of research in the green bond market. The results of the novel time-varying causality test indicate that SGPI has both positive and negative effects on GBI. Based on the positive reaction of GBI, a spike in SGPI fueled greater demand for green projects, which accelerated the increase in GBI. However, this view cannot be confirmed by the negative effect due to the energy crisis. This outcome is consistent with the general equilibrium model, which underlines a certain impact of SGPI on GBI. Furthermore, the positive impact of GBI on SGPI indicates that shale gas prices can be predicted from the green bond market. Understanding the nexus between SGPI and the GBI is of practical significance for bond issuers, regulators, and investors.