Dynamic relationships among green bonds, CO₂ emissions, and oil prices

Green bonds play a pivotal role in the financing of sustainable infrastructure systems. Likewise, CO₂ emissions and oil prices can cause an impact on the green bonds market. In order to better understand this issue, this study analyzes the relationship among green bonds, CO₂ futures’ prices, and oil prices using a daily data set that includes 2,206 observations corresponding to daily information from 1 January 2014 to 15 June 2022. The Granger Causality Test and the Dynamic Conditional Correlation (DCC-Garch) Model were employed to conduct this analysis. Furthermore, a sensitivity analysis was performed to identify crisis periods concerning the sample period and provide an analysis of DCC-Garch results during extreme market conditions like the COVID-19 pandemic and the Russian invasion of Ukraine. The Granger Causality Test results present a unidirectional causality running from the Green Bond Index to the oil price returns. Also, there is a unidirectional causality running from the Green Bond Index to the CO₂ futures’ returns. Additionally, a unidirectional causality runs from the oil price returns to the CO₂ futures’ returns. The results for the DCC-Garch indicate a positive dynamic correlation between the Brent oil price return and the CO₂ futures’ returns. Finally, the Green Bond Index shows a negative dynamic correlation to the oil return and the CO₂ futures’ returns presenting a strong correlation in uncertainty periods.