Work

Vulnerability of eco-friendly assets to return shocks from climate change and carbon credit indices

Year: 2025

Type: article

Abstract: Proposing a quantile-on-quantile extended joint connectedness (QQ-EJC) framework that combines the quantile-on-quantile connectivity (QQC) and extended-joint connectedness (EJC) models, we examine the vulnerability of eco-friendly assets to return shocks in climate change and carbon credit indices across various quantiles and evaluate the multivariate portfolio implications. The results show the following: Compared to the carbon credit index, the climate change index is more strongly interconnected with eco-friendly assets, particularly clean energy and renewable technology stocks. Connectedness is the strongest under extreme negative shocks. Carbon and climate change indices are dominant transmitters of extreme shocks to eco-friendly assets. The pandemic affected the evolution of total and net quantile connectivity measures, with carbon/climate indices recoupling with eco-friendly assets over time. Portfolio weights and hedging effectiveness under a minimum connectedness approach suggest that carbon credits and clean energy are the most effective assets, unlike green bonds that offer no added-value to a portfolio.

Source: Borsa Istanbul Review

DOI: 10.1016/j.bir.2025.100770

Authors: Remzi Gök, Elie Bouri, Hail Park

Institutions: Dicle University, Kyung Hee University, Lebanese American University

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: gold

Estimated APC paid: $1,500