article · International Review of Economics & Finance
This research evaluates the dynamic links between investor sentiment and Chinese green bonds between June 2017 and June 2022 using a quantile vector autoregression approach. The findings show that connectedness between sentiment and green bonds is substantially stronger in the short term, reaching 23 percent, compared to only 4 percent in the long term. Directional analysis indicates that green bonds act as net receivers of shocks across all quantiles. Investor sentiment receives shocks under extreme market conditions, specifically below the 20 percent and above the 80 percent quantiles, but transmits shocks during normal market conditions between these thresholds. Global uncertainties, including the COVID-19 pandemic, influence both investor sentiment and green bonds, providing critical insights into how market shocks spread during volatile periods.
Understanding how investor emotions interact with sustainable finance instruments helps market participants navigate turbulent economic periods. Because green bonds absorb shocks rather than transmit them, tracking shifts in sentiment provides vital warning signs during global crises, aiding efforts to maintain stability across emerging financial markets.
The findings can inform risk management systems, portfolio strategies, and policy interventions designed by institutional investors, fund managers, and financial regulators. As early-stage empirical market analysis, the work offers analytical insights rather than a ready-to-deploy tool, indicating a pathway toward integration into financial stress-testing and market surveillance software.
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This study explores the connectedness between investor sentiment (IS) and Chinese green bonds using a QVAR from 30th June 2017 to 29th June 2022. Dynamic connectedness is more apparent in the short term (23%) compared to the long term (4%). Net total directional connectedness over quantiles suggests that IS is a main net receiver of shocks during our sample period under 20% and over 80% quantile. However, IS is also a net transmitter of shocks between 20% and 80% quantile. Green bond is a net receiver of shocks over quantiles. Uncertainties such as the recent COVID-19 pandemic are attributed to changes in investor sentiment and Chinese green bonds. The findings of this article have profound implications for investors, policymakers, and the broader financial community, in terms of gaining insights into and warnings about how uncertainty occurrences can spread, and accordingly designing appropriate investment policies for stabilizing the stock market in China, and the emerging economies at large.
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DOI: 10.1016/j.iref.2024.03.045
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