Safe-haven properties of green bonds for industrial sectors (GICS) in the United States: Evidence from Covid-19 pandemic and Global Financial Crisis

Abstract

The Covid-19 pandemic unfolds the vulnerability of financial markets at the time of rare disasters. To hedge the mean-dependent risk, investors rely upon traditional assets such as gold; however, the tail-dependent risk, especially during market turbulence, considerably dampened the hedging effectiveness. On the contrary, green bonds emphasize sustainable investment in the long term and have become an inevitable tool to hedge against financial risks, and climate risks, and rare disasters. Thus, this study explores the hedging and safe haven aspects of the bullish market of green bonds against bearish markets of industry sectors across the United States (U.S.) over the period of 1st January 2008 to 7th May 2021, including the Global Financial Crisis and the Covid-19 pandemic. The findings of cross-quantilogram analysis disclose that green bonds reap diversification benefits during overall market conditions as well as market turmoil, hence confirm the safe-haven behavior of green bonds. Furthermore, our results disclose that the potential role of investment in green bonds can reboot the economy without affecting low-carbon transition targets.