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Risk Connectedness Between Green and Conventional Assets with Portfolio Implications
Muhammad Abubakr Naeem1,2, Sitara Karim3, Aviral Kumar Tiwari4,5
1Accounting and Finance Department, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates.
Green bonds offer diversification benefits, showing strong risk connectedness with conventional assets during economic shocks. They serve as effective hedges for assets like precious metals and cryptocurrencies.
Area of Science:
- * Finance
- * Environmental Economics
Background:
- * Growing investor interest in green bonds and their diversification potential.
- * Need to understand risk spillovers between green and conventional financial assets.
Purpose of the Study:
- * To investigate the dynamic risk connectedness between green bonds and conventional assets.
- * To analyze risk spillovers across different quantiles and economic conditions.
- * To assess the hedge effectiveness of green bonds.
Main Methods:
- * Dynamic equi-correlations estimation using DECO-GARCH.
- * Analysis of static and dynamic risk connectedness across median, low, and high quantiles.
- * Calculation of hedge ratios and hedge effectiveness.
Main Results:
- * Equi-correlations intensified during economic shocks (Shale oil crisis, Brexit, US interest rate hike, COVID-19).
- * Volatility analysis confirmed time-varying attributes of green and conventional assets.
- * Green bonds demonstrated effective hedging for precious metals and cryptocurrencies.
Conclusions:
- * Green bonds provide diversification opportunities and act as safe-haven assets during crises.
- * Findings inform policymakers and investors on portfolio diversification and risk management.
- * Highlights the importance of considering green assets in financial strategies.
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