Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 1-2021: Diversifier or More? Hedge and Safe Haven Properties of Green Bonds During COVID-19

Muhammad Arif (), Muhammad Abubakr Naeem (), Saqib Farid (), Rabindra Nepal () and Tooraj Jamasb ()
Additional contact information
Muhammad Arif: Department of Business Administration, Shaheed Benazir Bhutto University, Shaheed Benazirabad, Pakistan
Muhammad Abubakr Naeem: School of Economics and Finance, Massey University, New Zealand and Business Administration Department, Faculty of Management Sciences, ILMA University, Karachi, Pakistan
Saqib Farid: School of Business and Economics, University of Management and Technology, Pakistan
Rabindra Nepal: Faculty of Business and Law, School of Accountancy Economics and Finance, University of Wollongong, Australia
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: Against the backdrop of the Covid-19 pandemic, this study explores the hedging and safe-haven potential of green bonds for conventional equity, fixed income, commodity, and forex investments. We use the cross-quantilogram approach that provides a better understanding of the dynamic relationship between assets under different market conditions. Our full sample results show that the green bond index could serve as a diversifier asset for medium- and long-term equity investors. Besides, it can also serve as a hedging and safe haven instrument for currency and commodity investments. Moreover, the sub-sample analysis of the pandemic crisis period shows a heightened short- and medium-term lead-lag association between the green bond index and conventional investment returns. However, the green bond index emerges as a significant hedging and safe-haven asset for the long-term investors of conventional financial assets. Our results offer insights for long-term investors whose portfolios comprise conventional assets such as equities, commodities, forex, and fixed income securities. Further, our findings reveal the potential role that the green bond investments could play in global financial recovery efforts without compromising the low-carbon transition targets.

Keywords: Green bonds; Hedge; Safe-haven; Cross-quantilogram; COVID-19

JEL-codes: G10; G11; G19; Q01

39 pages, October 11, 2020

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