This paper investigates the time-frequency connectedness across the global green bond market and several mainstream financial and energy markets in an attempt to figure out whether green bonds ...represent a different asset class. The connectedness methodology proposed by Baruník and Křehlík (2018) is employed for that purpose. This approach enables quantifying the dynamics of connectedness in terms of return and volatility over time and across time scales simultaneously. The empirical results indicate that connectedness between the global green bond market and the conventional financial and energy markets mainly occurs at shorter time horizons, suggesting that shocks are rapidly transmitted across markets with an effect lasting less than a week. A strong connectedness in return and volatility is found between green bonds and Treasury and investment-grade corporate bonds, principally because of the numerous characteristics they share. This finding implies that green fixed-income securities are not a different asset class, but they closely mirror the performance of government and high-quality corporate bonds. In contrast, there is a quite limited connectedness between the green bond market and the general stock market, the renewable energy equity sector and the crude oil market regardless of the time horizon considered. This evidence shows that green bonds appear as a valuable tool to fight against climate change without having to sacrifice part of the return generated by traditional assets, particularly ordinary bonds. Furthermore, it can have useful implications for investors and policy makers.
Motivated by the lack of research on price efficiency dynamics of green bonds and the impact of the COVID-19 on the pricing of fixed-income securities, this study investigates the comparative ...efficiency of green and conventional bond markets pre- and during the COVID-19 pandemic applying asymmetric multifractal analysis. Specifically, the multifractal scaling behaviour is examined separately during upward and downward trends in bond markets using the asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) approach. The empirical findings confirm the presence of asymmetric multifractality in the green and traditional bond markets. Not surprisingly, inefficiency in both bond markets significantly escalated during the COVID-19 outbreak. Furthermore, our results indicate a higher level of efficiency of the conventional bond market over the full sample period. However, the green bond market is more efficient during a black swan event, such as the COVID-19 global pandemic, showing the potential of green bonds to become an effective diversifier for investors in traditional assets in times of extreme market turmoil. The results of the study can have important implications for investors and policymakers.
•Comparative efficiency of green and conventional bonds pre- and during COVID-19.•Asymmetric multifractal detrended fluctuation analysis method is applied.•Inefficiency in both bond markets significantly escalated during the COVID-19.•Higher efficiency of the conventional bond market is observed pre-COVID-19.•The green bond market is more efficient during the COVID-19 global pandemic.
This paper examines the time and frequency dynamics of connectedness among stock prices of U.S. clean energy companies, crude oil prices and a number of key financial variables using the methodology ...developed by Barunik and Krehlik (2018). This approach allows measuring the dynamics of return and volatility connectedness over time and across frequencies simultaneously. The empirical results show that most of return and volatility connectedness is generated in the very short-term, i.e. movements up to five days, while the long-term plays a minor role. Our analysis further reveals a greater degree of interconnectedness across crude oil and financial markets since the onset of the U.S. subprime mortgage crisis in summer of 2007, consistent with the view of a global re-pricing of risk triggered by the recent worldwide financial crisis. Crude oil prices do not appear as a key driver of the stock market performance of renewable energy companies in the short-term or the long-term, which suggests a decoupling of the alternative energy industry from the traditional energy market. Moreover, crude oil prices are a net receiver of financial shocks, supporting the financialization of the commodity markets since the early 2000s. In addition, a significant pairwise connectedness is found, mainly in the short-term, between clean energy and technology stock prices, indicating that these two types of stocks are perceived by investors as similar assets. These results can have important practical implications for investors and policy makers with different time horizons.
•Connectedness among stock prices of U.S. clean energy companies, crude oil prices•Dynamics of return and volatility connectedness over time and across frequencies•Most of return and volatility connectedness is found in the short-term•Crude oil prices are not the key driver of renewable energy companies' performance•Clean energy and technology stock prices co-move in short-run
This paper extends the literature on the relationship between oil price shocks and financial markets by examining the effect of oil shocks on the sovereign bond markets of a large number of advanced ...and emerging economies and exploring the impact of oil shocks on the degree of connectedness among international financial markets. We show that the effect of oil price shocks is not only limited to stock market returns, but also extends to bond markets, even after controlling for discount rate shocks as well as aggregate capital market effects. Unlike the case for stock markets, the effect on sovereign bonds is found to be rather heterogeneous (in terms of size and sign) and primarily driven by demand related shocks. We also show that oil price shocks serve as a driver of connectedness patterns across global financial markets, although the effect on connectedness depends on the nature of the oil market shock and the economic characteristics of the countries. Overall, the findings highlight the role of crude oil as a driver of not only of return dynamics in global stock and bond markets, but also of global financial connectedness patterns.
•A comparative analysis of the effect of oil demand and supply shocks.•International stock and sovereign bond markets react differently.•Oil demand shocks have a positive effect on stock market returns.•Supply shocks impact more heterogeneously.•Oil shocks also determine connectedness across stock and sovereign bond markets.
This paper examines the empirical validity of the tourism-led growth hypothesis in the top ten tourist destinations in the world (China, France, Germany, Italy, Mexico, Russia, Spain, Turkey, the ...United Kingdom, and the United States) using the quantile-on-quantile (QQ) approach and a new index of tourism activity that combines the most commonly used tourism indicators. This methodology, recently introduced by Sim and Zhou (2015), provides an ideal framework with which to capture the overall dependence structure between tourism development and economic growth. The empirical results primarily show a positive relation between tourism and economic growth for the ten countries considered with substantial variations across countries and across quantiles within each country. The weakest links are noted for China and Germany, possibly because of the limited importance of the tourism sector relative to other major economic activities in those countries. Important country-specific policy implications may be drawn from these findings.
•We examine the tourism-led growth hypothesis in the top ten tourist destinations.•The novel quantile-on-quantile approach is used.•Positive relationship between tourism and economic growth.•Notable heterogeneity across countries and quantiles.
This paper contributes to the current debate on the empirical validity of the decoupling hypothesis of the Islamic stock market from its mainstream counterparts by examining return and volatility ...spillovers across the global Islamic stock market, three main conventional national stock markets (the US, the UK and Japan) and a number of influential macroeconomic and financial variables over the period from July 1996 to June 2016. To that end, the VAR-based spillover index approach based on the generalized VAR framework developed by Diebold and Yilmaz (2012) is applied. The empirical analysis shows strong interactions in return and volatility among the global Islamic stock market, the conventional stock markets and the set of major risk factors considered. This finding means that the Islamic equity universe does not constitute a viable alternative for investors who wish to hedge their investments against the vagaries of stock markets, but it is exposed to the same global factors and risks hitting the conventional financial system. Therefore, this evidence leads to the rejection of the decoupling hypothesis of the Islamic stock market from conventional stock markets, which has significant implications for faith-based investors and policy makers in terms of portfolio diversification, hedging strategies and contagion risk.
This paper examines the existence of explosiveness in the Chinese stock market from a sectoral perspective. To that end, the method recently developed by Phillips and Shi (2019), which is an ...extension of the standard bubble detection technique of Phillips et al. (2015a,b), is used. The empirical results reveal the presence of several explosivity periods in all equity sectors and the aggregate equity market, showing the high propensity of the Chinese stock market to the appearance of episodes of explosiveness. One possible explanation for this frequent explosive dynamics stems from the fact that the Chinese equity market has numerous unique features and is still in an early stage of development. The two main periods of explosiveness common to many Chinese equity sectors correspond to the well-known 2007 and 2015 Chinese stock market bubbles. However, there seems to be some heterogeneity across sectors in terms of the number and duration of explosivity episodes. Furthermore, the significant degree of co-movement of periods of explosiveness in different equity sectors suggests potential contagion effects of explosive dynamics to the whole Chinese equity market, with the consequent detrimental impact on the Chinese real economy.
•We examine episodes of explosiveness in the Chinese stock market at the sector level.•The procedure for identification of explosive behavior recently developed by Phillips and Shi (2019) is used.•Several episodes of explosiveness are identified in all Chinese equity sectors and the aggregate Chinese stock market.•There are some heterogeneity across sectors in terms of the number, exact location and duration of episodes of explosivity.•The two major periods of explosive behavior correspond to the 2007 and 2015 Chinese stock market bubbles.
Default risk in the Travel and Leisure (T&L) industry remains understudied despite its implications for the industry’s health and stability. This paper investigates the transmission of default risk ...among US T&L firms over various credit horizons from July 22, 2008 to December 9, 2022, paying special attention to the impact of COVID-19. The short-, medium-, and long-term default risk factors are extracted from the Credit Default Spread (CDS) curve of the US T&L industry then used within a connectedness approach. The results reveal considerable default risk transmission, particularly in the long-term. Default risk transmission has spiked across all horizons since the pandemic, reflecting the deterioration in credit quality of T&L firms under the pandemic. Analysis of the drivers of default risk transmission shows that several macro-financial variables, especially news market sentiment and stock market volatility induced by the pandemic, have an important explanatory role.
•Quantify default risk transmission in the US Travel and Leisure industry.•Show systemic vulnerability, particularly during COVID-19 outbreak.•Default risk is transmitted particularly at longer horizons.•Impact of macro-economic drivers is heterogeneous across credit horizons.
•Causal links in volatility between oil prices and several exchange rates are examined.•The analysis is carried out in the time-frequency space using the wavelet-Granger causality method of Olayeni ...(2016).•Possible asymmetries in volatility spillovers coming from good and bad volatility are analyzed.•Causal flows are more pronounced at longer time horizons and from currency markets to the crude oil market.•Bad volatility tends to predominate over good volatility.
This paper investigates the causal linkages in volatility between crude oil prices and six major bilateral exchange rates against the U.S. dollar in the time-frequency space using high-frequency intraday data. Special attention is paid to the potential asymmetries in the causal effects between oil and forex markets. The wavelet-based Granger causality method proposed by Olayeni (2016) is applied to quantify the causal relations in the time and frequency domains simultaneously. Moreover, the realized semivariance approach of Barndoff-Nielsen et al. (2010) is used to account for possible asymmetries in the transmission of volatility shocks. The empirical results show that the significant causal links between oil prices and exchange rates are mainly concentrated in the long-run and during periods of increased economic and financial uncertainty such as the global financial crisis and the subsequent European sovereign debt crisis. Further, the causal effects from currency markets to the crude oil market are stronger than in the opposite direction, consistent with the forward-looking nature of exchange rates, the role of the U.S. dollar as the key invoicing currency for global oil trading and the expanding financialization of the oil market since the mid-2000s. In addition, significant asymmetries coming from good and bad volatility are found at longer horizons. Specifically, bad volatility seems to dominate good volatility in terms of the importance of transmission of volatility shocks.
This paper investigates the presence of time-varying causal linkages in mean and variance between oil price changes and stock returns for six major oil-importing countries (France, Germany, Italy, ...Spain, the UK and the US) in a multiscale framework that combines wavelet analysis and a modified version of the dynamic causality test of Lu, Hong, Wang, Lai, and Liu (2014). The results show significant bidirectional causal relations between oil and stock markets at the different time horizons for all countries. The causal links tend to be stronger at coarser scales and in periods of financial turmoil, mainly during the recent global financial and European sovereign debt crises. This evidence provides useful insights to participants in oil and stock markets and to policymakers.
•Time-varying causal links in mean and variance between oil price changes and stock returns are examined.•Six major developed oil-importing countries are considered.•A multiscale framework combining wavelet analysis with a dynamic Granger causality test is used.•Significant bidirectional causal relations between oil and stock markets are found for all countries.•Causal linkages are stronger at coarser scales and during periods of financial turmoil.
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