Green finance under stress: Unraveling the spillover effects of tail risk

Muhammad Abubakr Naeem, Sania Ashraf, Sitara Karim, Faten Moussa

Research output: Contribution to journalArticlepeer-review

Abstract

The study was undertaken in direct response to escalating concerns regarding the environmental implications of green assets, with the primary objective of determining the potential of green financial markets to serve as a mitigating force against the risks associated with green stocks, bonds, cryptocurrencies, and carbon markets. To evaluate the risk, the study employed tail risk at the 5% value-at-risk level using the conditional autoregressive value-at-risk (CAViaR) and time-varying parameters vector auto regressions (TVP-VAR) techniques. From the analysis it was found that there was a strong intra-class connectedness between the assets but limited interconnectedness between the markets. Furthermore, we conducted an analysis of dynamic NET spillovers to discern the markets responsible for transmitting and receiving risk spillovers across diverse markets, with the aim of comprehending their behavior both before and after the onset of the COVID-19 pandemic. It was also found that extreme risk spillovers were observed during the study period. These findings have important implications for policymakers, regulators, investors, and other financial market participants. Green assets are designed to combat climate risk by promoting sustainable energy practices and reducing carbon emissions and to maintain the stability of the financial markets under both extreme and typical market conditions.

Original languageEnglish
Pages (from-to)225-236
Number of pages12
JournalInternational Review of Economics and Finance
Volume93
DOIs
Publication statusPublished - Jun 2024
Externally publishedYes

Keywords

  • Carbon markets
  • CAViaR
  • Green bonds
  • Green cryptocurrencies
  • TVP-VAR

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Green finance under stress: Unraveling the spillover effects of tail risk'. Together they form a unique fingerprint.

Cite this