How do stock, oil, and economic policy uncertainty influence the green bond market?

Abstract This study investigates the effects of stock volatility, oil volatility, and economic policy uncertainty (EPU) on green bonk returns, which would shed some light on the diversification capability of green bond markets. The empirical analysis includes four major green bond indices and three uncertainty indices, namely the VIX, OVX, and EPU indices, from October 2014 to November 2020. The results indicate that the connection between green bond and uncertainty is time-varying and state-dependent. During periods of low uncertainty, green bond and uncertainty are weakly connected, thus, green bond can be used to hedge against uncertainty during these periods. These diversification benefits are lower during periods of high uncertainty.