TY - JOUR
T1 - Dynamic spillover effects among green bond, renewable energy stocks and carbon markets during COVID-19 pandemic
T2 - Implications for hedging and investments strategies
AU - Tiwari, Aviral Kumar
AU - Aikins Abakah, Emmanuel Joel
AU - Gabauer, David
AU - Dwumfour, Richard Adjei
N1 - Publisher Copyright:
© 2021 Elsevier Inc.
PY - 2022/2
Y1 - 2022/2
N2 - This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity as it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks, using daily data spanning from 4th January 2015 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP-VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest that clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind, emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.
AB - This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity as it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks, using daily data spanning from 4th January 2015 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP-VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest that clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind, emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.
KW - COVID-19
KW - Carbon price
KW - Dynamic connectedness
KW - Green bonds
KW - Hedging effectiveness
KW - Portfolio management
KW - Renewable energy stocks
KW - TVP-VAR
UR - http://www.scopus.com/inward/record.url?scp=85119973470&partnerID=8YFLogxK
U2 - 10.1016/j.gfj.2021.100692
DO - 10.1016/j.gfj.2021.100692
M3 - Article
AN - SCOPUS:85119973470
SN - 1044-0283
VL - 51
JO - Global Finance Journal
JF - Global Finance Journal
M1 - 100692
ER -