New Frontiers in Sustainable Finance: Asymmetric Risk Connectedness of Green Bonds with Global Financial Markets
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Abstract
Purpose: This paper explores the asymmetric and state-dependent dependence relationship of the S&P Green Bond Index with six international markets and assesses whether such dependence patterns are correlated with the risk-reduction benefit associated with holding a green bond portfolio.
Design/Methodology: The analysis is based on 2,856 aligned daily log returns of the S&P Green Bond Index, S&P 500, DAX, Shanghai Composite, S&P GSCI, S&P Bitcoin Index, and S&P Global Clean Energy Index from 2 January 2014 to 30 April 2026. Quantile-on-Quantile Regression (QQR) is computed. An economic significance is measured using long-only two-asset minimum variance portfolios.
Findings: The findings show that there is significant asset and state-specific dependence. The minimum-variance portfolios invest relatively heavily in green bonds due to the significantly reduced unconditional volatility and yield significant in-sample variance reductions, but do not show universal hedging or safe-haven performance.
Practical Implications: Green bonds should be considered as a state contingent, low volatility diversifier and not a universally defensive or safe haven asset. Market-state stress testing, asset-specific dependence and currency exposure are to be taken into consideration by investors and portfolio managers as part of their allocation decision.
Originality: The present study is an incremental cross-market extension of the existing body of work, and then connecting asymmetric dependence estimates to formal portfolio evidence.
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Copyright (c) 2026 Azhar Hussain, Mehwish Zafar, Waqas Khan
This work is licensed under a Creative Commons Attribution 4.0 International License.
The data used in this study are based on publicly available financial market indices. The index series were obtained from recognized financial data providers and can be accessed by researchers through the relevant data platforms, subject to their respective licensing and access conditions. The authors can provide details on the index identifiers, sample period, and data construction procedure upon reasonable request.
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