Exploring the ripple effect: Time-frequency dynamics of uncertainty indexes, green bonds, oil, and stocks

Roudari, Soheil and Ahmadian- Yazdi, Farzaneh and Mensi, Walid and Tiwari, Aviral (2024): Exploring the ripple effect: Time-frequency dynamics of uncertainty indexes, green bonds, oil, and stocks.

Abstract

This study investigates the dynamic risk spillover among several uncertainty indices—trade policy uncertainty (TPU), financial policy uncertainty (FPU), and monetary policy uncertainty (MPU)—as well as WTI crude oil prices, the S&P500 stock market, and US green bonds. Utilizing graph theory and the TVP-VAR model, our findings indicate that WTI crude oil, green bonds, and S&P500 stock market returns predominantly act as net transmitters of shocks within the network. In contrast, TPU, FPU, and MPU generally serve as net receivers of these shocks. According to the TVP-VAR-DY analysis, green bonds provide significant benefits for portfolio diversification over the sample period. Nonetheless, the novel graph theory approach reveals that green bonds are not ideal diversifiers in the short term. Additionally, MPU exhibits the highest out-degree in the short term, while FPU shows the highest out-degree in the medium and long term. These results demonstrate the importance of different mathematical approaches, offering valuable insights for investors, policymakers, and academics.

• Item Type: MPRA Paper
• Language: English
• Keywords: Green bonds, stock market, oil, uncertainty index, TVP-VAR and graph theory
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics

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