The time-varying relationship between climate uncertainty, low-carbon stocks and green bonds

Abstract

In the context of climate risk, it is crucial to manage the risk of green financial markets well. In this paper, we construct a TVP-SV-VAR model to assess the dynamic impacts of climate uncertainty and climate policy uncertainty on low-carbon stocks and green bonds, and we use a spillover index model based on the TVP-VAR model to assess the spillover effects between them. The results show that the impacts of climate uncertainty and climate policy uncertainty on low-carbon stocks and green bonds are time-varying. In addition, green bonds are subject to smaller spillovers from climate policy uncertainty and climate uncertainty compared to low-carbon stocks. Our findings have important implications for both policymakers and investors.