New Frontiers in Sustainable Finance: Asymmetric Risk Connectedness of Green Bonds with Global Financial Markets
Authors
Article Sidebar
Main Article Content
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.
Article Details
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.
Aarif, Md. B. H., Uddin, G. S., Ali, Md. S., Mamun, M. M. R., Park, D., & Kang, S. (2022). Examining the Interconnectedness between Green Bond and Green Equity Markets. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4072579 DOI: https://doi.org/10.2139/ssrn.4072579 CrossrefGoogle Scholar
Aloui, C., Mejri, S., Hamida, H. B., & Yildirim, R. (2025). Green bonds and clean energy stocks: Safe havens against global uncertainties? A wavelet quantile-based examination. The North American Journal of Economics and Finance, 76, 102310. DOI: https://doi.org/10.1016/j.najef.2024.102310 CrossrefGoogle Scholar
Arif, M., Naeem, M. A., Farid, S., Nepal, R., & Jamasb, T. (2022). Diversifier or more? Hedge and safe haven properties of green bonds during COVID-19. Energy Policy, 168, 113102. DOI: https://doi.org/10.1016/j.enpol.2022.113102 CrossrefGoogle Scholar
Asiri, A., Alnemer, M., & Bhatti, M. I. (2023). Interconnectedness of Cryptocurrency Uncertainty Indices with Returns and Volatility in Financial Assets during COVID-19. Journal of Risk and Financial Management, 16(10), 428. https://doi.org/10.3390/jrfm16100428 DOI: https://doi.org/10.3390/jrfm16100428 CrossrefGoogle Scholar
BaŞci, E. S., & Meo, M. S. (2024). The Future of Portfolio Management with Green Bonds: Trends and Innovations. In Green Bonds and Sustainable Finance (pp. 153–168). Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9781032686844-10/future-portfolio-management-green-bonds-e%C5%9Fref-sava%C5%9F-ba%C5%9Fci-muhammad-saeed-meo DOI: https://doi.org/10.4324/9781032686844-10
Baur, D. G. (2013). The structure and degree of dependence: A quantile regression approach. Journal of Banking & Finance, 37(3), 786–798. DOI: https://doi.org/10.1016/j.jbankfin.2012.10.015 CrossrefGoogle Scholar
Ben Ameur, H., Ftiti, Z., Louhichi, W., & Yousfi, M. (2024). Do green investments improve portfolio diversification? Evidence from mean conditional value-at-risk optimization. International Review of Financial Analysis, 94, 103255. https://doi.org/10.1016/j.irfa.2024.103255 DOI: https://doi.org/10.1016/j.irfa.2024.103255 CrossrefGoogle Scholar
Chai, S., Chu, W., Zhang, Z., Li, Z., & Abedin, M. Z. (2025). Dynamic nonlinear connectedness between the green bonds, clean energy, and stock price: The impact of the COVID-19 pandemic. Annals of Operations Research, 345(2–3), 1137–1164. https://doi.org/10.1007/s10479-021-04452-y DOI: https://doi.org/10.1007/s10479-021-04452-y CrossrefGoogle Scholar
Cortellini, G., & Panetta, I. C. (2021). Green bond: A systematic literature review for future research agendas. Journal of Risk and Financial Management, 14(12), 589. DOI: https://doi.org/10.3390/jrfm14120589 CrossrefGoogle Scholar
Driessen, M. (2024). Sustainable Finance: An Overview of ESG in the Financial Markets. In D. Busch, G. Ferrarini, & S. Grünewald (Eds.), Sustainable Finance in Europe (pp. 465–504). Springer International Publishing. https://doi.org/10.1007/978-3-031-53696-0_12 DOI: https://doi.org/10.1007/978-3-031-53696-0_12 CrossrefGoogle Scholar
Ferrer, R., Shahzad, S. J. H., & Soriano, P. (2021). Are green bonds a different asset class? Evidence from time-frequency connectedness analysis. Journal of Cleaner Production, 292, 125988. https://doi.org/10.1016/j.jclepro.2021.125988 DOI: https://doi.org/10.1016/j.jclepro.2021.125988 CrossrefGoogle Scholar
Guo, Y., Deng, Y., & Zhang, H. (2023). How do composite and categorical economic policy uncertainties affect the long-term correlation between China’s stock and conventional/green bond markets? Finance Research Letters, 57, 104148. DOI: https://doi.org/10.1016/j.frl.2023.104148 CrossrefGoogle Scholar
Hadhri, S., Zargar, F. N., Naeem, M. A., & Chibani, F. (2025). Bridging sustainable finance, AI, and clean technology amid economic shocks: How are they connected in median and extreme conditions? Journal of Environmental Management, 391, 126375. https://doi.org/10.1016/j.jenvman.2025.126375 DOI: https://doi.org/10.1016/j.jenvman.2025.126375 CrossrefGoogle Scholar
Haranen, E. (2024). Investigation of flight-to-quality phenomena between green bonds and stock market indices during covid-19 in European markets. https://lutpub.lut.fi/handle/10024/167883
Ibrić, M., Kozarević, E., & Mešković, A. (2024). The rise of green bonds: Global context and European insights. Journal of Economics, Law, and Society, 1(1), 55–71. DOI: https://doi.org/10.70009/jels.2024.1.1.4 CrossrefGoogle Scholar
Jiang, W., Hu, Y., & Zhao, X. (2025). The impact of artificial intelligence on carbon market in China: Evidence from quantile-on-quantile regression approach. Technological Forecasting and Social Change, 212, 123973. DOI: https://doi.org/10.1016/j.techfore.2025.123973 CrossrefGoogle Scholar
Jiang, Y., Wang, J., Ao, Z., & Wang, Y. (2022). The relationship between green bonds and conventional financial markets: Evidence from quantile-on-quantile and quantile coherence approaches. Economic Modelling, 116, 106038. DOI: https://doi.org/10.1016/j.econmod.2022.106038 CrossrefGoogle Scholar
Kamal, E., & Bouri, E. (2025). Green bond, stock, cryptocurrency, and commodity markets: A multiscale analysis and portfolio implications. Financial Innovation, 11(1), 100. https://doi.org/10.1186/s40854-024-00749-6 DOI: https://doi.org/10.1186/s40854-024-00749-6 CrossrefGoogle Scholar
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x DOI: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x CrossrefGoogle Scholar
Mensi, W., Vo, X. V., Ko, H.-U., & Kang, S. H. (2023). Frequency spillovers between green bonds, global factors and stock market before and during COVID-19 crisis. Economic Analysis and Policy, 77, 558–580. DOI: https://doi.org/10.1016/j.eap.2022.12.010 CrossrefGoogle Scholar
Meo, M. S., Afshan, S., Zaied, Y. B., & Staniewski, M. (2026). The Resilience of Green Bonds During Market Turmoil: Implications for Investors and Policymakers. International Journal of Finance & Economics, 31(1), 1214–1231. https://doi.org/10.1002/ijfe.3099 DOI: https://doi.org/10.1002/ijfe.3099 CrossrefGoogle Scholar
Monk, A., & Perkins, R. (2020). What explains the emergence and diffusion of green bonds? Energy Policy, 145, 111641. DOI: https://doi.org/10.1016/j.enpol.2020.111641 CrossrefGoogle Scholar
Naeem, M. A., Nguyen, T. T. H., Nepal, R., Ngo, Q.-T., & Taghizadeh–Hesary, F. (2021). Asymmetric relationship between green bonds and commodities: Evidence from extreme quantile approach. Finance Research Letters, 43, 101983. DOI: https://doi.org/10.1016/j.frl.2021.101983 CrossrefGoogle Scholar
Nerlinger, M. (2020). Will the DAX 50 ESG Establish the Standard for German Sustainable Investments? A Sustainability and Financial Performance Analysis. Credit and Capital Markets – Kredit Und Kapital, 53(4), 461–491. https://doi.org/10.3790/ccm.53.4.461 DOI: https://doi.org/10.3790/ccm.53.4.461 CrossrefGoogle Scholar
Nguyen, T. T. H., Naeem, M. A., Balli, F., Balli, H. O., & Vo, X. V. (2021). Time-frequency comovement among green bonds, stocks, commodities, clean energy, and conventional bonds. Finance Research Letters, 40, 101739. DOI: https://doi.org/10.1016/j.frl.2020.101739 CrossrefGoogle Scholar
Pham, L., & Nguyen, C. P. (2021). Asymmetric tail dependence between green bonds and other asset classes. Global Finance Journal, 50, 100669. https://doi.org/10.1016/j.gfj.2021.100669 DOI: https://doi.org/10.1016/j.gfj.2021.100669 CrossrefGoogle Scholar
Reboredo, J. C., & Ugolini, A. (2020). Price connectedness between green bond and financial markets. Economic Modelling, 88, 25–38. DOI: https://doi.org/10.1016/j.econmod.2019.09.004 CrossrefGoogle Scholar
Reboredo, J. C., Ugolini, A., & Aiube, F. A. L. (2020). Network connectedness of green bonds and asset classes. Energy Economics, 86, 104629. https://doi.org/10.1016/j.eneco.2019.104629 DOI: https://doi.org/10.1016/j.eneco.2019.104629 CrossrefGoogle Scholar
Rehan, A., Mohti, W., & Ferreira, P. (2024). Quantile Connectedness Amongst Green Assets Amid COVID-19 and Russia–Ukraine Tussle. Economies, 12(11), 307. https://doi.org/10.3390/economies12110307 DOI: https://doi.org/10.3390/economies12110307 CrossrefGoogle Scholar
Rizvi, S. K. A., Naqvi, B., Mirza, N., & Umar, M. (2022). Safe haven properties of green, Islamic, and crypto assets and investor’s proclivity towards treasury and gold. Energy Economics, 115, 106396. https://doi.org/10.1016/j.eneco.2022.106396 DOI: https://doi.org/10.1016/j.eneco.2022.106396 CrossrefGoogle Scholar
Shah, S. A., Nawaz, A., Yuan, D., & Su, C. W. (2026). Green bond performance under ESG uncertainty: Nonlinear Time–Frequency quantile analysis. Economic Modelling, 107631. DOI: https://doi.org/10.1016/j.econmod.2026.107631 CrossrefGoogle Scholar
Sim, N., & Zhou, H. (2015). Oil prices, US stock return, and the dependence between their quantiles. Journal of Banking & Finance, 55, 1–8. DOI: https://doi.org/10.1016/j.jbankfin.2015.01.013 CrossrefGoogle Scholar
Tiwari, A. K., Kumar, S., & Abakah, E. J. A. (2025). Correlation and price spillover effects among green assets. Annals of Operations Research, 347(1), 419–444. https://doi.org/10.1007/s10479-024-06154-7 DOI: https://doi.org/10.1007/s10479-024-06154-7 CrossrefGoogle Scholar
Vihervuori, N. (2023). Correlation between green bonds and financial markets: The impact of using green bonds in the stock-bond portfolio. https://osuva.uwasa.fi/items/6c3aacf8-b35d-4fb4-9d8f-bdef06abc197
World Bank. (2019). 10 Years of Green Bonds: Creating the Blueprint for Sustainability Across Capital Markets.
Wu, R., Yan, J., & Işık, C. (2025). The dynamics between clean energy, green bonds, grain commodities, and cryptocurrencies: Evidence from correlation and portfolio hedging. Economic Change and Restructuring, 58(4), 60. https://doi.org/10.1007/s10644-025-09902-2 DOI: https://doi.org/10.1007/s10644-025-09902-2 CrossrefGoogle Scholar
Yadav, M. P., Ashok, S., Taghizadeh-Hesary, F., Dhingra, D., Mishra, N., & Malhotra, N. (2024). Uncovering time and frequency co-movement among green bonds, energy commodities and stock market. Studies in Economics and Finance, 41(3), 638–659. https://doi.org/10.1108/SEF-03-2023-0126 DOI: https://doi.org/10.1108/SEF-03-2023-0126 CrossrefGoogle Scholar
Yadav, M. P., Kumar, S., Mukherjee, D., & Rao, P. (2023). Do green bonds offer a diversification opportunity during COVID-19?—An empirical evidence from energy, crypto, and carbon markets. Environmental Science and Pollution Research, 30(3), 7625–7639. https://doi.org/10.1007/s11356-022-22492-0 DOI: https://doi.org/10.1007/s11356-022-22492-0 CrossrefGoogle Scholar
Yildirim, R., & Mejri, S. (2026). Dynamic interactions between green cryptocurrencies and ESG indices: A Multivariate Quantile-on-Quantile Regression approach. Journal of Sustainable Finance & Investment, 1–35. https://doi.org/10.1080/20430795.2026.2617647 DOI: https://doi.org/10.1080/20430795.2026.2617647 CrossrefGoogle Scholar
Zhang, Y. (2025). Construction of novel portfolio based on Modern Portfolio Theory. Proceedings of the 1st International Conference on E-Commerce and Artificial Intelligence (ECAI 2024), 491–495. https://www.scitepress.org/Papers/2024/132693/132693.pdf DOI: https://doi.org/10.5220/0013269300004568 CrossrefGoogle Scholar
Zhao, M., & Park, H. (2024). Quantile time-frequency spillovers among green bonds, cryptocurrencies, and conventional financial markets. International Review of Financial Analysis, 93, 103198. https://doi.org/10.1016/j.irfa.2024.103198 DOI: https://doi.org/10.1016/j.irfa.2024.103198 CrossrefGoogle Scholar