The impact of conventional energy markets on connectedness dynamics among eco-friendly assets

Abstract

This study examines the connectedness among eco-friendly assets and how volatility in fossil energy markets affects this connectedness. Using a broad coverage for eco-friendly assets such as a clean energy index, a clean cryptocurrency (Cardano), a green bond index, and a sustainability-leaders index, our results show that the connectedness is higher in the extremities (tail-risk spillovers) and more significant during essential world events such as a pandemic or war. Further, we employ nonparametric causality in quantiles, quantile regression, and kernel-based regularised least squares methods to investigate the influence of fossil energy markets (crude oil, natural gas, and gas oil) volatility on eco-friendly assets’ connectedness. Our results imply that fossil energy market volatility has a positive and causal effect on connectedness dynamics among eco-friendly assets. Our study offers important implications for investors and policymakers in crafting portfolio strategies and policy decisions.