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Do the green bonds overreact to the COVID-19 pandemic?
Tianxiang Cui1, Muhammad Tahir Suleman2, Hongwei Zhang1,3
1School of Mathematics and Statistics, Central South University, Changsha 410083, China.
The COVID-19 pandemic significantly impacted global markets, with green bonds and treasury markets showing the strongest spillover effects. Researchers identified a low-risk portfolio during the pandemic.
Area of Science:
- Environmental Economics
- Financial Markets
- Pandemic Impact Analysis
Background:
- The COVID-19 pandemic caused unprecedented global economic disruption.
- Understanding financial market interconnectedness is crucial during crises.
- Green bonds represent a growing segment of sustainable finance.
Purpose of the Study:
- To analyze the transmission of economic shocks from COVID-19 to various global financial markets.
- To quantify the spillover effects on green bonds and conventional assets.
- To identify a low-risk investment portfolio during the pandemic.
Main Methods:
- Utilized the Diebold and Yilmaz (2012) and Baruník and Křehlík (2018b) spillover framework.
- Applied time-series analysis to assess shock transmissions.
- Examined commodity, treasury, stock, and clean energy markets alongside green bonds.
Main Results:
- COVID-19 induced strong spillover effects, particularly in the medium and long term.
- Spillover intensity increased significantly with pandemic severity.
- Green bonds experienced the most substantial impact, followed by treasury markets.
Conclusions:
- Green bonds are highly sensitive to pandemic-related economic shocks.
- Treasury markets also showed significant vulnerability.
- The study provides insights for constructing resilient portfolios during global health crises.
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