Asymmetric effects of geopolitical risks and uncertainties on green bond markets

This paper examines the asymmetric effects of the United States Economic Policy Uncertainty (USEPU), Geopolitical Threats (GPRT), Geopolitical Acts (GPRA), and the West Texas Intermediate (WTI) crude oil on Green Bond returns. Our study analyses USEPU, GPRT, GPRA, WTI, and Green Bond monthly data from September 2012 to August 2022. By applying the Nonlinear Autoregressive Distributed Lags (NARDL) model, our empirical evidence shows that in the short run, the return on green bonds is negatively affected by an increase in USEPU and GPRA positively affected by an increase in GPRT and WTI. In the long run, the return on green bonds is negatively affected by an increase in USEPU, GPRA, and GPRT but positively affected by WTI. Considering the climate crisis, looking at these findings in the context of green bonds is essential to entice green investments. Policymakers should use our results for a policy design to mitigate green bond market volatility caused by external uncertainties and risks. Furthermore, we conclude that uncertainties should be considered when investing in green bonds and managing investment portfolios.

Automated summary

This study investigates the asymmetric effects of USEPU, GPRT, GPRA, and WTI crude oil on the returns of Green Bonds. By using the NARDL model, the empirical evidence shows that in the short run, an increase in USEPU negatively affects green bond returns, while an increase in GPRT and WTI positively affects green bond returns. In the long run, an increase in USEPU, GPRA, and GPRT has a negative impact on green bond returns, while WTI has a positive impact. These findings are crucial for policymakers and investors in managing green investments and portfolios.