Dynamic connectedness of green bond with financial markets of European countries under OECD economies

Abstract

This paper examines the dynamic connectedness between green bonds and OECD fnancial markets of European countries. The study is conducted on daily price of green bonds and selected European stock markets from January 27, 2015, to August 4, 2021. Top ten European countries namely Luxembourg, Switzerland, Norway, Denmark, Germany, Netherlands, Iceland, Austria, Sweden, and Belgium are included within the OECD economies. The study uses Diebold and Yilmaz and Barunik & Krehlic tests to examine the connectedness between the economies and green bonds in short, medium, and long term. Result exhibits volatility across all frequency cycles. Brussel Stock Exchange and Euronext Amsterdam are identifed as high-risk markets in the OECD European market. Evidence emerging from this study advocate the inclusion of green bonds in these fnancial markets for shorter time periods only. Results from this study are expected to have practical implica tions for portfolio managers, investors, and market regulators, suggesting incorpora tion of green bonds in investor portfolio for efcient diversifcation of risk.