Modelling the mean and volatility spillover between green bond market and renewable energy stock market

Abstract

In this paper, we investigate the mean and volatility spillover between the price of green bonds and the price of renewable energy stocks using daily price series from 02/11/2011 to 31/08/2021. The unrestricted trivariate VAR-BEKK-GARCH model is employed to examine potential causality, mean, and volatility spillover effects from the green bond market to the renewable energy stock market and vice-versa. The results from the VAR-BEKK-GARCH model indicate that there exists a uni-directional Granger causality from renewable energy stock prices to green bond prices. While the price of green bonds is positively influenced by its own lagged values and the lagged values of renewable energy stock prices, only the past price value of renewable energy stocks has a positive effect on the current price value. We identified a uni-directional volatility spillover from renewable energy stock prices to green bond prices. However, there was no shock spillover from both sides of the market. This research shows that investors in the green bond market should always consider information from the renewable energy stock market because of the causal link between renewable energy stocks and green bonds.