Abstract
In this paper, we explore whether the green bond, a kind of rarely discussed fixed-income asset, acts as a hedge or safe haven to crude oil in extreme market conditions, by comparing the results with precious metals. The green bond has negative correlations with crude oil when the COVID-19 pandemic and the Russia-Ukraine conflict outbreak, and the highest risk reduction effectiveness among all assets, indicating that investors benefit the most from adding the green bond to their portfolios. Applying the model purposed by Baur and McDermott (2010), we further find that the green bond is both a strong safe haven and a strong hedge for the crude oil market, gold is a weak safe haven and a strong hedge, silver only acts as a weak hedge, and other precious metals are neither safe haven nor hedge. Our results reveal that crude oil market investors can hedge the risk during the extreme rise and fall periods by including the green bond in their portfolios.
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