Green Bonds: A Closer Look at Their Market Connections

Understanding how green bonds interact with other financial markets can be quite fascinating. This study looked at the returns and interdependence between green bonds and various assets like conventional bonds, stocks, Bitcoin, Ethereum, crude oil, and gold from January 2016 to February 2024. Using methods such as quantile-on-quantile return connectedness (QQC), cross-quantilogram (CQ), and Granger causality in quantiles (GC), researchers found that green bonds have a strong connection with conventional bonds, gold, and stocks.

Green bonds seem to be the main source of shocks for Bitcoin and gold markets, while they receive shocks from other markets. Interestingly, the CQ results show that when conventional bonds have negative returns, green bonds experience positive returns a week later, suggesting a delayed safe-haven ability for green bonds. The GC results indicate that the connection between green bonds and oil, cryptocurrencies, and conventional stocks is two-way and stronger during extreme market conditions. However, with Islamic stocks, the connection is one-way and visible mainly during market downturns.

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