Abstract
We analyse linkages between sustainable bond markets and a number of key financial markets in Europe, namely corporate bond, sovereign bond, renewable energy, equity and volatility markets. We apply a novel empirical approach using zero-volatility spreads (z-spreads) as a measure of relative bond performance to adjust for the sensitivity of bond prices to changes in interest rates. We model these linkages using a Markov-switching vector autoregressive model and static and dynamic copulas that enable us to test for contagion with conditional value-at-risk measures. We find evidence of bi-directional contagion between the sustainability-linked bond and green bond markets along with contagion between other fixed-income markets and the sustainable bond market. Our results indicate possible diversification benefits that green bonds or sustainability-linked bonds may provide to investors active in the key markets analysed.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.