Assessing the Impact of Green Bond Volatility Spillover Effects on Other Financial Markets

This paper assesses the impact of volatility spillover from the green bond market to other financial markets in the context of economic crises. The volatility spillover effect refers to the transfer of volatility from one market to another, which can lead to increased interconnectivity and risk in related markets. The study uses daily data on the returns of green bonds, traditional energy assets, clean energy assets, gold assets and the dowjones stock index. The study period includes 2014-2024. To model the volatility spillover effect, the dynamic spillover method of Diebold and Yilmaz (DY) (2012), based on an econometric vector autoregression model, is used. The results show that the green bond market shows a significant relationship with the clean energy market. However, this relationship is not observed with traditional energy assets, indicating the diversification benefits of investing in green bonds. During periods of crisis, the connection between both the system as a whole and individual assets increases significantly. This suggests that green bonds may play a significant role in reducing portfolio risk during market turmoil. The findings have important implications for investors and policymakers. Investors should consider potential volatility spillover effects when constructing their portfolios, and policymakers should consider the potential impact of green bonds on the stability of the financial system.