Spillovers, correlations and hedging among green bonds, clean energy stocks and fossil fuels: The effects of four turmoils

Abstract

This study investigates the volatility spillovers and the hedging among green bonds, clean energy stocks, and fossil fuels markets. During the ten-year sample period between 2012 and 2022, four major turmoils are observed chronologically: The oil price plunge of 2014-2016, the COVID-19 pandemic starting in December 2019, the negative oil price in April 2020, and the Russia-Ukraine crisis/war starting in November 2021. The dynamic volatility spillovers reach their peak points during the onset period of COVID-19 pandemic, the Russia-Ukraine crisis/war, the oil price plunge, and the negative oil price in descending order of magnitude, respectively. Furthermore, the results show that during the turmoils not caused by the fossil fuel markets, crude oil and coal are better instruments for hedging due to their negative correlations with green bonds and clean energy stocks. However, during turmoils caused by fossil fuel markets, the hedging and the diversification power of crude oil against green bonds and clean energy stocks is weaker as the dynamic correlations become more positive.