Sailing across climate-friendly bonds and clean energy stocks: An asymmetric analysis with the Gulf Cooperation Council Stock markets

Abstract

This study endeavors to identify the extreme quantile dependence between clean energy stocks and climate-friendly (or green) bonds with GCC stock markets for the period encompassing September 1, 2014 to September 17, 2021. Employing the cross-quantilogram technique, we report higher dependencies between clean energy stocks and the stocks of United Arab Emirates, Qatar, and Saudi Arabia, whereas moderate to lower dependencies exist between clean energy stocks and the stocks of Bahrain, Kuwait, and Oman. Climate-friendly bonds reveal an insignificant correlation with all GCC stocks except the UAE, indicating the diversification benefits of these climate-friendly bonds for GCC stock markets. The recursive cross-quantilogram emphasizes time-varying features where two significant crisis events are spotted as the shale oil crisis and COVID-19 pandemic with a sharp increase in the lower, median, and upper quantiles. Comparing clean energy stocks with climate bonds, clean energy stocks have substantial comovement with GCC stocks while climate bonds have little comovement. Climate friendly bonds are useful for diversifying investments in GCC stocks. Our findings are of particular interest to policymakers, regulators, investors, and portfolio managers who need to understand the relationship between clean energy stocks, green bonds, and GCC stocks.