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<p>This investigation explored the spillover effects between clean, green, and eco-friendly indices, while quantifying their correlation with financial stress across different time frequencies. For this purpose, we apply the Time-Varying Parameter Vector Autoregressive model alongside wavelet coherence technique for the timeframe spanning January 2017 to October 2024. We revealed a significant increase in the connectedness index between environmentally sustainable assets, particularly particularly during the coronavirus pandemic and the geopolitical tensions involving Russia and Ukraine, indicating evidence of a contagion effect. Notably, we noted that U.S. financial instability has a strong negative impact on environmentally sustainable assets over the medium to long term, especially in periods of bullish market trends. This suggests that environmentally sustainable assets cannot effectively hedge against systemic financial risk during periods of turbulence and euphoria. However, we demonstrate that the S&amp;P Green Bonds and S&amp;P Global Clean Energy indices can serve as hedging tools. Our empirical findings highlight crucial insights for policymakers seeking to foster the growth of environmentally friendly projects and for investors aiming to channel capital into green economic initiatives for the purposes of diversification and investment hedging.</p>

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Does U.S. Financial Instability Matter on Clean, Green, and Sustainable Investment Indices? Evidence from TVP-VAR and Wavelet Coherence Approaches

  • 期刊论文

  • 发表日期：

    2025年6月24日

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  • Hayet Soltani,
  • Mouna Boujelbène Abbes

摘要

This investigation explored the spillover effects between clean, green, and eco-friendly indices, while quantifying their correlation with financial stress across different time frequencies. For this purpose, we apply the Time-Varying Parameter Vector Autoregressive model alongside wavelet coherence technique for the timeframe spanning January 2017 to October 2024. We revealed a significant increase in the connectedness index between environmentally sustainable assets, particularly particularly during the coronavirus pandemic and the geopolitical tensions involving Russia and Ukraine, indicating evidence of a contagion effect. Notably, we noted that U.S. financial instability has a strong negative impact on environmentally sustainable assets over the medium to long term, especially in periods of bullish market trends. This suggests that environmentally sustainable assets cannot effectively hedge against systemic financial risk during periods of turbulence and euphoria. However, we demonstrate that the S&P Green Bonds and S&P Global Clean Energy indices can serve as hedging tools. Our empirical findings highlight crucial insights for policymakers seeking to foster the growth of environmentally friendly projects and for investors aiming to channel capital into green economic initiatives for the purposes of diversification and investment hedging.