Abstract:

Research background: The green bond market is one of the fastest-growing areas for investing. As investors and issuers show growing interest in it, it is essential to have a deeper understanding of the various risk and return trade-offs between green bond investments and other asset classes.

Purpose of the article: The aim of this study is to evaluate the dependence structure of the green bond market with selected financial markets under conditions of structural change.

Methods: Three multivariate GARCH models (CCC-GARCH, DCC-GARCH, and VCC-GARCH) are used to model the dynamics of volatility and conditional correlations between the stock market (the S&P 500 Index), the conventional bond market (the S&P 500 Bond Index), the green bond market (the S&P Green Bond Index), and the VIX Index as uncertainty measure. All analyses are conducted for the period from July 1, 2009, to December 31, 2023.

Findings and value added: The paper contributes to the existing literature by focusing on the dependencies between the green bond market and selected financial markets. Our results reveal that there are dependencies between analysed time series however, the direction of these correlations changes depending on which period is considered. At the first stage of the operation of the green bond market, from 2009 until the end of 2013, the correlation with the equity market is positive, but it has changed to be negative since 2014. We observe a similar situation for the VIX Index and green bonds. It is worth noting that in the case of this pair, the correlation coefficients were negative in the initial period, indicating that during periods of high uncertainty, the attractiveness of the profit on green bonds decreased. The largest changes in the pattern of dynamic conditional correlations are observed for green bonds and conventional bonds, as the correlation remains negative or close to zero until the end of 2013. After this time, they become buoyant and their values increase to higher levels. This phenomenon may be justified by the introduction of green local government bonds in 2012 and corporate green bonds in 2013