Price connectedness between green bond and financial markets

• Published in: Economic modelling Vol. 88; pp. 25 - 38
• Main Authors: Reboredo, Juan C., Ugolini, Andrea
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2020
• Subjects: Financial markets; Green bonds; Price spillovers; Structural VAR; Green bonds; Price spillovers; Financial markets; Structural VAR
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2019.09.004

We study price connectedness between the green bond and financial markets using a structural vector autoregressive (VAR) model that captures direct and indirect transmission of financial shocks across markets. Using heteroskedasticity to identify the structural VAR model parameters, our empirical findings reveal that the green bond market is closely linked to the fixed-income and currency markets, receiving sizeable price spillovers from those markets and transmitting negligible reverse effects. We also show that, in contrast, the green bond market is weakly tied to the stock, energy and high-yield corporate bond markets. These findings have implications in terms of portfolio and risk management decisions for environmentally aware investors holding positions in green bonds. •We study price connectedness between the green bond and financial markets.•We use a structural VAR model identified through heteroskedasticity.•Green bonds receive sizeable price spillovers from treasury and currency markets.•Green bonds are weakly connected with the stock, energy and high-yield corporate bond markets.•The green bond market is a net price-spillover receiver.