Flight-to-quality or not? Evidence from China’s green bond and green equity markets during COVID-19 crisis

ABSTRACT

This study investigates the time-varying interdependence relationships between green bonds and green equity returns in China before and during the COVID-19 period. The rolling-window Copula Quantile-on-Quantile regression method has been employed to capture the dynamic dependence structure of the asset returns. The empirical results are as follows: First, the green bond-green equity correlations have increased significantly during the COVID-19 pandemic era. Second, the heterogeneous dependencies across different quantiles show the time-varying information transmission mechanism between green financial markets depending on the market conditions. Specifically, the correlations have increased around median level given pandemic shocks and an opposite correlation movement can be found in extreme quantiles, supporting the ‘flight-to-quality’ effect.

KEYWORDS:

• Flight-to-quality
• green bond
• copula
• Quantile-on-Quantile regression
• COVID-19

JEL CLASSIFICATION:

• G10
• G14
• G00

Disclosure statement

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

Additional information

Funding

This research is partly supported by the National Natural Science Foundation of China under the Grant Number 72,101,228, 71,671,062, the Philosophy and Social Science Foundation of Zhejiang Province under the Grant Number 21NDJC183YB, and Social Science Research Base Project in Ningbo under the Grant Number JD5-FZ20.