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Time and frequency dynamics of connectedness between green bonds, clean energy markets and carbon prices

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Abstract
In this paper, we investigate the time and frequency dynamics of connectedness among green assets such as green bonds, clean energy markets, and carbon prices. Using daily price data, we explore return spillovers across these green financial markets by applying the novel framework on time and frequency dynamics proposed by Baruník and Krehlík (2018). This allows us to identify the direction of spillovers among our variables, and decompose the connectedness to differentiate between short-term and long-term return spillovers. Our results indicate that green bonds and carbon prices act as net receivers of shocks, but mainly in the short-term. We also observe a low level of connectedness among our clean energy markets across both low and high frequency bands, even during times of economic or political crisis. Additionally, there are periods in which connectedness between the clean energy assets is driven by the long-term. In periods of economic and political stability, carbon prices may also provide an interesting diversifying tool for short term investors. Our results should be of interest for investors and portfolio managers who focus on green financial markets, by strengthening the notion that green financial markets can offer diversification opportunities, for both short-term and long-term investors. This paper is the first to use this framework to investigate systematic risks within green financial markets.

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  • Ringstad, Ingrid Emilie Flessum & Tselika, Kyriaki, 2023. "Time and frequency dynamics of connectedness between green bonds, clean energy markets and carbon prices," Discussion Papers 2023/18, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2023_018
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    File URL: https://hdl.handle.net/11250/3100998
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    References listed on IDEAS

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    More about this item

    Keywords

    Green finance; Green Bonds; Energy Markets; Connectedness; Time-Frequency space; Systemic Risk; Portfolio Management;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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