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The interrelationship between the carbon market and the green bonds market: Evidence from wavelet quantile-on-quantile method

Ren, Xiaohang and Li, Yiying and Yan, Cheng and Wen, Fenghua and Lu, Zudi (2022) 'The interrelationship between the carbon market and the green bonds market: Evidence from wavelet quantile-on-quantile method.' Technological Forecasting and Social Change, 179. p. 121611. ISSN 0040-1625

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Abstract

The 26th edition of the United Nations climate change conference (COP26) underlines the importance of financial products and markets related to “carbon” (e.g., carbon and green bond markets). We, to our knowledge, are the first to construct a framework based on multiple time scales and market conditions to quantify the interrelationship between the carbon futures and green bond markets. Specifically, we estimate it from short-, medium-, and long-term perspectives and different market conditions by combining the maximum overlap discrete wavelet transform (MODWT) and two quantile methods to decompose the sequences into various frequencies and quantiles. We find that the carbon futures price unilaterally Granger causes the green bond index and empirically analyzes the asymmetric impact of the carbon futures with a two-dimensional quantile model constructed by the quantile-on-quantile (QQ) regression approach. We find positive effects of the carbon futures in the medium to long term and erratic performance in the short term. The effects are more pronounced when both markets are in an extreme state. Our findings enrich the research related to eco-economy and carbon finance, providing a more comprehensive and detailed research framework, and helping others optimize investment portfolios and policy arrangements.

Item Type: Article
Uncontrolled Keywords: Carbon futures; Green bond; Wavelet analysis; Quantile Granger causality test; Quantile-on-quantile regression
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 09 Mar 2022 21:00
Last Modified: 18 May 2022 10:46
URI: http://repository.essex.ac.uk/id/eprint/32473

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