Time-varying relation between black and green bond price benchmarks: Macroeconomic determinants for the first decade

We examine the determinants of correlation patterns between green and black bond markets. Both the correlations and determinants are time-varying and estimated using a two-stage sequential methodology, extracting dynamic conditional correlations (DCC) in the first, then applying dynamic model averaging (DMA) in the second to establish the determinants of market correlations. We provide evidence that the connection between green and black bonds is sensitive to: changes in financial market volatility; economic policy uncertainty; daily economic activity; oil prices and; uniquely constructed measures of positive and negative news-based sentiment towards green bonds.