What impact do the uncertainties have on the interconnectivity between the green bond and conventional markets before and during the war in Ukraine?

Abstract

Global financial markets are affected by economic crises, financial instability, and geopolitical unrest, which also affect strategic choices of portfolio investors. The aim of research is to assess the impact of uncertainties on the interconnectivity between the green bond and conventional financial markets before and after the Russian-Ukrainian war. Time series analysis is applied for the study: vector autoregression (VAR) models to assess the overall interconnectivity between financial markets and dynamic model averaging (DMA) to assess the impact of uncertainties. The findings revealed that the overall spillover index between the analysed financial markets increased during the war. The green bond market also became a transmitter of shocks. With the outbreak of the war, uncertainty grew and had a significant impact on overall spillover; however, the geopolitical risk and volatility (VIX) indices had a negative impact on interconnectivity. The study provides more insights into the interdependence of green and conventional financial markets during the crisis periods, the impact of uncertainties on this interdependence, and how these relationships change during the crisis. The results have significant implications for global investment choices and risk management for investors holding significant positions in the green bond market.