The impact of conventional energy markets on connectedness dynamics among eco-friendly assets

ABSTRACT

This study examines the connectedness among eco-friendly assets and how volatility in fossil energy markets affects this connectedness. Using a broad coverage for eco-friendly assets such as a clean energy index, a clean cryptocurrency (Cardano), a green bond index, and a sustainability-leaders index, our results show that the connectedness is higher in the extremities (tail-risk spillovers) and more significant during essential world events such as a pandemic or war. Further, we employ nonparametric causality in quantiles, quantile regression, and kernel-based regularised least squares methods to investigate the influence of fossil energy markets (crude oil, natural gas, and gas oil) volatility on eco-friendly assets’ connectedness. Our results imply that fossil energy market volatility has a positive and causal effect on connectedness dynamics among eco-friendly assets. Our study offers important implications for investors and policymakers in crafting portfolio strategies and policy decisions.

KEYWORDS:

• sustainability
• eco-friendly
• spillovers
• energy

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Source: https://www.ft.com/content/959dfa93-e6de-441e-9328-9a99c11bd54d

2 Source: https://www.spglobal.com/_assets/documents/ratings/research/101585823.pdf

3 Source: https://thedocs.worldbank.org/en/doc/98c3baab0ea4fc3da4de0e528a5c0bed-0340012023/original/GSS-Quarterly-Newsletter-Issue-No-2.pdf

4 Source: https://www.bloomberg.com/professional/blog/green-bonds-boom-in-first-half-of-2023/

5 Generalized Forecast Error Variance Decomposition