Modelling the mean and volatility spillover between green bond market and renewable energy stock market

Samuel Asante Gyamerah; Bright Emmanuel Owusu; Ellis Kofi Akwaa-Sekyi; Samuel Asante Gyamerah; Bright Emmanuel Owusu; Ellis Kofi Akwaa-Sekyi

doi:10.3934/GF.2022015

Green Finance

2022, Volume 4, Issue 3: 310-328. doi: 10.3934/GF.2022015

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Modelling the mean and volatility spillover between green bond market and renewable energy stock market

1.
Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology, Kumasi-Ghana
2.
Laboratory for Interdisciplinary Statistical Analysis – Kwame Nkrumah University of Science and Technology (KNUST-LISA), Kumasi-Ghana
3.
Department of Mathematics, Kwame Nkrumah University of Science and Technology, Kumasi-Ghana
4.
Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology, Kumasi-Ghana

Received: 02 July 2022 Revised: 13 August 2022 Accepted: 19 August 2022 Published: 30 August 2022
JEL Codes: B23, C22, C50

In this paper,we investigate the mean and volatility spillover between the price of green bonds and the price of renewable energy stocks using daily price series from 02/11/2011 to 31/08/2021. The unrestricted trivariate VAR-BEKK-GARCH model is employed to examine potential causality,mean,and volatility spillover effects from the green bond market to the renewable energy stock market and vice-versa. The results from the VAR-BEKK-GARCH model indicate that there exists a uni-directional Granger causality from renewable energy stock prices to green bond prices. While the price of green bonds is positively influenced by its own lagged values and the lagged values of renewable energy stock prices,only the past price value of renewable energy stocks has a positive effect on the current price value. We identified a uni-directional volatility spillover from renewable energy stock prices to green bond prices. However,there was no shock spillover from both sides of the market. This research shows that investors in the green bond market should always consider information from the renewable energy stock market because of the causal link between renewable energy stocks and green bonds.
- green bonds,
- clean energy stock,
- volatility spillover,
- climate change,
- VAR-BEKK-GARCH,
- climate finance
Citation: Samuel Asante Gyamerah, Bright Emmanuel Owusu, Ellis Kofi Akwaa-Sekyi. Modelling the mean and volatility spillover between green bond market and renewable energy stock market[J]. Green Finance, 2022, 4(3): 310-328. doi: 10.3934/GF.2022015

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Abstract

In this paper,we investigate the mean and volatility spillover between the price of green bonds and the price of renewable energy stocks using daily price series from 02/11/2011 to 31/08/2021. The unrestricted trivariate VAR-BEKK-GARCH model is employed to examine potential causality,mean,and volatility spillover effects from the green bond market to the renewable energy stock market and vice-versa. The results from the VAR-BEKK-GARCH model indicate that there exists a uni-directional Granger causality from renewable energy stock prices to green bond prices. While the price of green bonds is positively influenced by its own lagged values and the lagged values of renewable energy stock prices,only the past price value of renewable energy stocks has a positive effect on the current price value. We identified a uni-directional volatility spillover from renewable energy stock prices to green bond prices. However,there was no shock spillover from both sides of the market. This research shows that investors in the green bond market should always consider information from the renewable energy stock market because of the causal link between renewable energy stocks and green bonds.

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