Cross-Quantile Dependence Between Green Bonds and Financial Markets: A Cross-Quantilogram Approach

Abstract

The opportunities in green investment have propelled the green bond market at a time when climate change has emerged as a critical issue. As more investors express a preference for environmentally responsible investments, the popularity of green bonds remains high. Such considerations motivate the exploration of the relationship between these instruments and different assets to better appreciate their potential benefits. This paper examines the relationship between green bonds and various financial markets, including conventional bonds, equities, oil, and clean energy stocks, using daily return data from July 2014 to October 2024. Hence, the cross-quantilogram approach is employed to explore how Economic Policy Uncertainty (EPU) and Financial Market Uncertainty (VIX) influence these dependence structures. The empirical results suggest a strong correlation between green bonds and conventional bonds. Moreover, green bonds can serve as a diversification tool for investors in stock, oil, and clean energy markets. The uncertainty measures do not provide any information that could affect the dependence structures among these markets.