Green bonds and conventional financial markets in China: A tale of three transmission modes

Existing research does not provide enough knowledge support for Chinese investors to adjust their investment portfolio to integrate green bonds. Given this background, this paper identifies how green bonds transmit information with other assets from three aspects return, volatility, and tail risks. We apply the time-frequency generalized spillover index method and the MVMQ-CAViaR model to shed light on this issue. Our empirical evidence shows that green bonds and fixed-income assets have strong pairwise information transmission in both the return and volatility spillovers, while the equity assets produce the most extreme risk spillovers. The green-connected assets (Green investment stocks and energy commodities) always display weak spillover effects, revealing that few investors have a green preference in the Chinese green bonds market. Moreover, we find that the green bonds would have a different net spillover role across frequency scales and that there are some asymmetric characteristics in extreme risk contagion, which also supplements the understanding of the information transmission modes. In short, this paper provides a comprehensive view of the cross-market information dependencies of Chinese green bonds, thereby obtaining some instructive implications for both green bond investors and policymakers.