Does uncertainty affect the relationship between green bond and carbon markets?

Sustainable financing and regulations to achieve carbon neutrality are important global issues for achieving the Sustainable Development Goals. This study investigates the effects of various global uncertainties on the relationship between green bonds and carbon markets using GARCH-MIDAS-X and DCC-MIDAS-X models. We find that temporary shock-related uncertainty, such as infectious disease risk or geopolitical risk, weakens this relationship, whereas policy-related uncertainty, including uncertainty in climate, economics, and monetary policy, strengthens it. These findings highlight the complex dynamics between sustainable finance mechanisms and the importance of managing uncertainty to facilitate a gradual transition to a sustainable economy.