TY - JOUR
T1 - Dynamic and frequency spillovers between green bonds, oil and G7 stock markets: Implications for risk management
T2 - Implications for risk management
AU - Mensi, Walid
AU - Naeem, Muhammad Abubakr
AU - Vo, Xuan Vinh
AU - Kang, Sang Hoon
N1 - Publisher Copyright:
© 2021
PY - 2022
Y1 - 2022
N2 - This paper examines the dynamic and frequency spillovers between global Green Bonds (GBs), WTI oil and G7 stock markets using the time–frequency spillover index by Baruník and Křehlík (2018) and wavelet coherency approach. The results show that the spilllovers is dynamic and crisis-sensitive. Furthermore, adding GBs and oil futures to stock portfolio reduces the spillover size during turmoil periods. The short-term spillovers (up to five trading days) represent the largest proportion of the total spillovers. A significant jump in spillovers is observed in the early of COVID-19 outbreak (March–April 2020). Interestingly, Canada, France, Germany, Italy, and UK are the net transmitters of spillovers, whereas Japan and GBs are the net recipients of the spillovers, irrespective of time horizons. Oil and US stock market shift from net contributors in short term to net receipts in medium and long terms. Wavelet coherence analysis reveals significant co-movements between G7 stock markets and both oil and GBs. The co-movements are more pronounced in both medium and long terms and during COVID-19 spread where both oil and GBs lead stock markets. GBs provide higher diversification benefits to G7 investors than oil in the short-term. The hedging is expensive at the long term for GBs and intermediate term for WTI oil. Finally, the hedge effectiveness of crude oil is higher than GBs, irrespective of time horizons.
AB - This paper examines the dynamic and frequency spillovers between global Green Bonds (GBs), WTI oil and G7 stock markets using the time–frequency spillover index by Baruník and Křehlík (2018) and wavelet coherency approach. The results show that the spilllovers is dynamic and crisis-sensitive. Furthermore, adding GBs and oil futures to stock portfolio reduces the spillover size during turmoil periods. The short-term spillovers (up to five trading days) represent the largest proportion of the total spillovers. A significant jump in spillovers is observed in the early of COVID-19 outbreak (March–April 2020). Interestingly, Canada, France, Germany, Italy, and UK are the net transmitters of spillovers, whereas Japan and GBs are the net recipients of the spillovers, irrespective of time horizons. Oil and US stock market shift from net contributors in short term to net receipts in medium and long terms. Wavelet coherence analysis reveals significant co-movements between G7 stock markets and both oil and GBs. The co-movements are more pronounced in both medium and long terms and during COVID-19 spread where both oil and GBs lead stock markets. GBs provide higher diversification benefits to G7 investors than oil in the short-term. The hedging is expensive at the long term for GBs and intermediate term for WTI oil. Finally, the hedge effectiveness of crude oil is higher than GBs, irrespective of time horizons.
KW - Frequencies
KW - G7 stock markets
KW - Green bonds
KW - Hedging
KW - Oil
KW - Spillovers
UR - http://www.scopus.com/inward/record.url?scp=85121935301&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85121935301&partnerID=8YFLogxK
U2 - 10.1016/j.eap.2021.11.015
DO - 10.1016/j.eap.2021.11.015
M3 - Article
SN - 0313-5926
VL - 73
SP - 331
EP - 344
JO - Economic Analysis and Policy
JF - Economic Analysis and Policy
ER -