Downside risk connectedness between Islamic sectors and green bond markets: implications for hedging and investment strategies

Billah M. Hoque M.E. Balli F. Kaur J. Kumar S.
2024 Routledge

Applied Economics
2024 #56 Issue 59 8900 - 8933 pp.

This study explores the relationship between the green bond and Islamic sectoral markets in terms of downside risk. A new framework was developed using CAViaR and QVAR techniques to construct hedging and portfolio strategies. Results show higher levels of downside risk connectedness and spillover across different risk environments, with short-run connectedness outperforming long-run. The downside risk connectedness and spillover are time-varying, influenced by major events like the Shale Oil Revolution, US–China trade war, COVID-19 pandemic, and Russo-Ukrainian conflict. Green bond market indices of China, the European Union, the US, and the global market receive net shocks in moderate and higher downside risk environments across various frequencies. US and global green bonds exhibit net transmitter roles in a downside-risk environment. Islamic Sectors BM, OG, FIN, CG, and HC are shock transmitters, while TELE and UTL are shock receivers across different downside risk environments and frequencies. Net roles are CS, INDUS, and TECH, subject to the downside risk environment and frequencies.

dynamic connectedness , Green bond market , hedging effectiveness , Islamic markets

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Department of Accounting and Finance, College of Business Administration, Prince Mohammad Bin Fahd University, Al Khobar, Saudi Arabia
BRAC University, Dhaka, Bangladesh
School of Economics and Finance, Massey University, Auckland, New Zealand
Al-Farabi Kazakh National University, Almaty, Kazakhstan
Faculty of Management Studies, University of Delhi, New Delhi, India
Dr. Bhim Rao Ambedkar College, University of Delhi, New Delhi, India

Department of Accounting and Finance
BRAC University
School of Economics and Finance
Al-Farabi Kazakh National University
Faculty of Management Studies
Dr. Bhim Rao Ambedkar College

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