Energy markets and green bonds: A tail dependence analysis with time-varying optimal copulas and portfolio implications

Muhammad Abubakr Naeem, Elie Bouri, Mabel D. Costa, Nader Naifar, Syed Jawad Hussain Shahzad

Research output: Contribution to journalArticlepeer-review

56 Citations (Scopus)


We examine the asymmetric and extreme tail dependence between five energy markets (crude oil, natural gas, heating oil, gasoline, and coal) and green bonds using a time-varying optimal copula (TVOC) model. The results indicate the existence of multiple tail dependence regimes, implying the unsuitability of applying static or dynamic models to entirely describe the extreme dependence between energy markets and green bonds. There is an extreme negative tail dependence between green bonds and four energy commodities (crude oil, heating oil, gasoline, and coal), whereas an extreme positive tail dependence is shown for green bonds and natural gas. Largely, stressful periods such as the COVID19 outbreak, shape the tail dependence, which is also the case for extreme risk spillovers involving, especially, crude oil. Hedging effectiveness analysis indicates that green bonds can effectively hedge most of the energy commodities. The conditional diversification benefits seem to vary with time, especially for natural gas, and differ across the energy markets. Notably, green bonds provide higher conditional diversification benefits when combined with coal for several portfolio weights.

Original languageEnglish
Article number102418
JournalResources Policy
Publication statusPublished - Dec 2021
Externally publishedYes


  • Asymmetric tail dependence
  • Conditional diversification benefits
  • Energy commodities
  • Extreme spillovers
  • Green bonds
  • Hedging
  • Time-varying optimal copula

ASJC Scopus subject areas

  • Sociology and Political Science
  • Economics and Econometrics
  • Management, Monitoring, Policy and Law
  • Law


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