The resilience of green bonds to oil shocks during extreme events

Abstract

Investments in green energy are increasing exponentially due to rising environmental concerns. Our work scrutinizes the influence of decomposed structural oil shocks on the green bonds in developed countries from November 28, 2008 to May 21, 2021. We use contemporary time-varying methodologies including nonlinear causality and rolling window wavelet correlation tests. We find that green bonds remain strongly correlated with demand and supply shocks in the long run, particularly the green bonds in the UK, US, Japan, and Switzerland during the crisis periods. Japan shows a strong positive correlation with demand shocks over the long run but negative correlation in the short run. In contrast, Norway, New Zealand, and Sweden's green bonds have a positive correlation with supply and demand shocks during the short-run period. Our results carry useful implications for investors and policymakers.