Diversifier or More? Hedge and Safe Haven Properties of Green Bonds During COVID-19

40 Pages Posted: 9 Feb 2021

See all articles by Muhammad Arif

Muhammad Arif

Shaheed Benazir Bhutto University

Muhammad Abubakr Naeem

School of Economics and Finance, Massey University, New Zealand; Business Administration Department, Faculty of Management Sciences, ILMA University, Karachi, Pakistan

Saqib Farid

University of Management and Technology (UMT), Pakistan

Rabindra Nepal

School of Accounting, Economics, and Finance, University of Wollongong

Tooraj Jamasb

Copenhagen School of Energy Infrastructure Department of Economics, Copenhagen Business School

Date Written: February 8, 2021

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 Classification: G10, G11, G19, Q01

Suggested Citation

Arif, Muhammad and Naeem, Muhammad Abubakr and Farid, Saqib and Nepal, Rabindra and Jamasb, Tooraj, Diversifier or More? Hedge and Safe Haven Properties of Green Bonds During COVID-19 (February 8, 2021). CAMA Working Paper No. 20/2021, Available at SSRN: https://ssrn.com/abstract=3782126 or http://dx.doi.org/10.2139/ssrn.3782126

Muhammad Arif

Shaheed Benazir Bhutto University ( email )

Landhi Stop
Nawabshah, Sindh 67450
Pakistan

Muhammad Abubakr Naeem

School of Economics and Finance, Massey University, New Zealand; Business Administration Department, Faculty of Management Sciences, ILMA University, Karachi, Pakistan ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Saqib Farid

University of Management and Technology (UMT), Pakistan ( email )

C-II
Lahore, Punjab 54770
Pakistan

Rabindra Nepal (Contact Author)

School of Accounting, Economics, and Finance, University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Tooraj Jamasb

Copenhagen School of Energy Infrastructure Department of Economics, Copenhagen Business School ( email )

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