Do oil shocks affect the green bond market?

This study examines the predictive power of oil shocks for the green bond markets. In line with this aim, we investigated the extent to which oil shocks could be used to accurately make in- and out-of-sample forecasts for green bond returns. Three striking findings emanated from our results: First, the three types of oil shock are reliable predictors for green bond indices. Second, the performances of the predictive models were consistent across the different forecasting horizons (i.e. H = 1 to H = 24). Third, our findings were sensitive to classifying the dataset into pre-COVID and COVID eras. For instance, the results confirmed that the predictive power of oil shocks declined during the crisis period. We also discuss some policy implications of this study's findings.

Automated summary

This study examines the predictive power of oil shocks for the green bond markets. Our findings show that oil shocks are reliable predictors for green bond indices, and the predictive models perform consistently across different forecasting horizons. However, the predictive power of oil shocks declined during the COVID crisis period. The study also discusses some policy implications of these findings.