Does Economic Policy Uncertainty Affect Green Bond Markets? Evidence from Wavelet-Based Quantile Analysis

ABSTRACT

This paper investigates the wavelet-based quantile dependence between Economic Policy Uncertainty (EPU) and green bond markets over 2014–2021. We first determine how the connectivity between EPU and green bonds differs across different investment horizons by decomposing EPU and green bond series into various frequency bands. Next, we provide a quantile-based framework to characterize the reliance between EPU and green bond markets across various market circumstances. Our findings show that the Granger causality from EPU to the green bond market is non-linear and varies across time scales. Our results benefit policymakers with a policy design to mitigate systematic volatility caused by external shocks in the green bond markets.

KEYWORDS:

• Green bond
• economic policy uncertainty
• wavelet analysis
• quantile methods
• COVID-19

JEL:

• C1
• C5
• F3
• F6
• G1
• Q4

Acknowledgments

The authors are grateful for the insightful comments and suggestions from the Editor and three anonymous referees on the earlier draft of this paper.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

Supplemental data for this article can be accessed on the publisher’s website

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This research was supported by the Major Projects of the National Natural Science Fund of China [NO.71991483] and the Fundamental Research Funds for the Central Universities of Central South University[NO.2022ZZTS0353].