Dynamic and Frequency-based Connectedness Among Sustainable Markets: Evidence from Quantile TVP-VAR and Wavelet Analysis

Abstract

This study examines the dynamic and asymmetric connectedness among global sustainability-focused financial markets, including clean energy, the hydrogen market, ESG, carbon markets, and green bonds. The study uses an integrated methodological framework—Quantile-TVP-VAR, connectedness network, and Wavelet coherence—examining spillovers across market regimes and investment horizons. The results reveal that spillover among sustainability markets largely depends on markets’ regimes and frequency horizons. Specifically, the study found that at lower and higher quantiles, clean energy, ESG, and hydrogen markets act as net transmitters. Whilst, at higher quantiles, green bonds and carbon markets absorb systemic shocks and stabilise sustainability markets. The frequency distribution highlights a prominent connectedness in the short-term frequency horizons, while moderate at medium and long-run. The study recommends that diversification benefits are temporary and regime-dependent, while portfolio risk management must be horizon-specific. The hydrogen and clean energy markets can be used for resilience enhancement in sustainability-focused portfolios. Moreover, carbon and green bonds can improve market liquidity and stabilise the sustainable finance framework.