T ancoso, Tiago; Gomes, So ia
A icle
G een shocks: The spillo e e ec s o g een equi y indices
on global ma ke dynamics
Economies
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Sugges ed Ci a ion: T ancoso, Tiago; Gomes, So ia (2024) : G een shocks: The spillo e e ec s o
g een equi y indices on global ma ke dynamics, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12,
Iss. 4, pp. 1-16,
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Ci a ion: T ancoso, Tiago, and So ia
Gomes. 2024. G een Shocks: The
Spillo e E ec s o G een Equi y
Indices on Global Ma ke Dynamics.
Economies 12: 83. h ps://doi.o g/
10.3390/economies12040083
Academic Edi o : Angeliki
N. Menegaki
Recei ed: 23 Feb ua y 2024
Re ised: 15 Ma ch 2024
Accep ed: 29 Ma ch 2024
Published: 7 Ap il 2024
Copy igh : © 2024 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
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4.0/).
economies
A icle
G een Shocks: The Spillo e E ec s o G een Equi y Indices on
Global Ma ke Dynamics
Tiago T ancoso 1and So ia Gomes 2,*
1P oMe heus—Ins i u o Poli écnico de Viana do Cas elo, Rua Escola Indus ial e Come cial Nun’Ál a es,
Viana do Cas elo 4900-347, Po ugal; [email p o ec ed]
2Resea ch on Economics, Managemen and In o ma ion Technologies, REMIT, Po ucalense Uni e si y,
Rua D . An ónio Be na dino de Almeida 541, 4200-072 Po o, Po ugal
*Co espondence: [email p o ec ed]
Abs ac : This s udy in es iga es he impac o g een equi y indices on global ma ke dynamics
using a ime- a ying pa ame e ec o au o eg ession (TVP-VAR) model. We unco e a signi ican
shi in he ole o he global ma ke , ansi ioning om a shock ansmi e o a shock ecei e ,
as he in luence o g een inance g ows. By di ec ly compa ing g een equi y indices wi h hei
co esponding global pa en indices, we adop a global pe spec i e ha anscends he limi a ions
o s udies ocusing on speci ic egions, such as he USA, China, o Eu ope. This no el app oach
minimizes he po en ial biases in he ansmission channels wi hin egional ma ke s, enabling a
mo e comp ehensi e unde s anding o he ela ionship be ween g een inance and global ma ke
dynamics. Mo eo e , by ocusing on equi y indices we ensu e a consis en compa ison o inancial
ins umen s, a oiding he complexi ies ha a ise when compa ing di e en asse classes such as
g een bonds and con en ional equi ies. Fo global in es o s, ou esul s highligh he impo ance o
dynamic and lexible hedging s a egies ha adap o he dis inc cha ac e is ics o g een asse s and
hei g owing in luence on he global ma ke . Risk manage s should inco po a e hese ime- a ying
spillo e e ec s in o hei models o be e assess and mi iga e po en ial isks. Policymake s should
conside he g owing in luence o g een inance on he b oade ma ke when o mula ing egula ions
and incen i es o suppo sus ainable in es ing, as ou indings unde sco e he inc easing impo ance
o his sec o in shaping ma ke dynamics.
Keywo ds: spillo e s; g een equi y indices; g een inance; economic in e connec edness; TVP-VAR
1. In oduc ion
In ecen decades, he en i onmen al c isis has mani es ed wi h inc easing global
signi icance, s essing he need o sus ainable in e en ions. The e olu ion o g een inance
has been pi o al in his ega d. Since he Eu opean In es men Bank pionee ed he use o
g een bonds in 2007, he e has been a no able shi in inancial ma ke s owa ds en i onmen-
ally conscious in es men s. This shi was u he cemen ed by he In e na ional Capi al
Ma ke s Associa ion’s es ablishmen o he G een Bond P inciples in 2014, which signi i-
can ly p opelled he g ow h o he g een bond ma ke . Despi e hese ad ancemen s, g een
inancial ins umen s s ill ep esen a ela i ely small segmen wi hin he b oade ma ke s
(Rebo edo 2018;Sangio gi and Schopohl 2021). The global inancial ecosys em, ma ked by
i s complexi y, poses challenges o he ajec o y o g een inance. Financial ins abili ies,
he in e wining o clima e isks wi h inancial s abili y, and he in ica e in e ela ionship
be ween g een equi y and o he inancial ma ke s add laye s o complexi y. These dynamics
can p esen un o eseen isks, necessi a ing cau ious na iga ion by in es o s (Rebo edo
2018). The COVID-19 pandemic has pa icula ly unde sco ed he suscep ibili y o g een
inance o global e en s a ec ing i s each and ma ke e iciency (Jiang e al. 2023;Naeem
e al. 2021a)
Economies 2024,12, 83. h ps://doi.o g/10.3390/economies12040083 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 83 2 o 16
As he p ominence o g een inance inc eases and he in eg a ion o g een and con en-
ional ma ke s in ensi ies, a undamen al ques ion a ises: can g een inance in luence he
dynamics o global ma ke s? Despi e he g owing body o li e a u e on g een inance, he
speci ic impac o g een inancial ins umen s, pa icula ly g een equi y indices, on global
equi y ma ke s emains unde explo ed. Many s udies ha e ocused on egional ma ke s,
such as he USA (D agomi escu-Gaina e al. 2021), Eu ope (Sangio gi and Schopohl 2021),
o China (Duan e al. 2023), p o iding aluable insigh s in o he dynamics o g een inance
wi hin hese speci ic con ex s. Howe e , his egional ocus limi s ou unde s anding o
how sus ainabili y conside a ions embedded in g een inance a e in luencing he b oade
global ma ke dynamics. A po en ial e e sal in he di ec ion o ansmission channels can
be obse ed, wi h g een ma ke s exe ing in luence on he b oade global ma ke . Howe e ,
exis ing esea ch p esen s mixed iews on he ne di ec ion o hese spillo e e ec s. This
ambigui y may pa ly s em om he common app oach in s udies ha c oss-examine
di e en egional ma ke asse s and segmen s, such as compa ing he US equi y ma ke
(e.g., S&P 500) wi h he g een bond ma ke (e.g., Solac i e G een Bond Index).
The implica ions could be p o ound. I g een equi y indices a e highly in eg a ed wi h
hei global pa en indices o he poin o in luencing hei pe o mance, i may indica e a
undamen al shi in ma ke dynamics, wi h sus ainabili y conside a ions gaining p omi-
nence. Al e na i ely, i he in luence is ound o p edominan ly low om con en ional
o g een ma ke s, his would sugges ha g een inance, while g owing, is s ill na iga ing
wi hin he pa adigms se by adi ional ma ke o ces. These insigh s a e ele an o
in es o s, policymake s, and s akeholde s who a e seeking o unde s and he e ol ing
ole o g een inance in shaping inancial ma ke dynamics. A p elimina y p e iew o he
esul s un eils a landscape o p onounced in e connec edness be ween g een and global
equi y indices, a inding ha adds a new dimension o ou unde s anding o g een ma ke s.
Pa icula ly s iking is he e ol ing ole o he Global B oad Ma ke Index, which appea s
o ha e ansi ioned om being p edominan ly a shock ansmi e o a ne ecei e o
shocks o igina ing om g een equi y indices. This shi is no only s a is ically signi ican
bu ca ies impo an implica ions o global in es o s and policymake s. Addi ionally, he
a ying in luences o mul i-indus y e sus speci ic-indus y g een indices p o ide insigh s
in o hei dis inc oles in he inancial domain, u he con ibu ing o ou unde s anding
o he g een inance ecosys em.
In an e o o add ess he esea ch gap ega ding he impac o g een inance on
global ma ke s, his s udy adop s a ocused me hodological app oach, esul ing in se e al
con ibu ions o he li e a u e. Fi s , we di ec ly compa e g een equi y indices wi h hei
co esponding global pa en index, employing an “apples o apples” compa ison. This
app oach, combined wi h ou ocus on ansmission channels speci ically be ween equi y in-
dices, aims o esol e he compa abili y issue esul ing om linking indices ha a e dis inc
in scope, me hodological p ocedu e, and composi ion, such as he dispa a e MSCI, S&P,
BoA, and Solac i e indices ( o an example, see Rebo edo and Ugolini 2020). By employing
a ime- a ying app oach ha conside s he dis inc cha ac e is ics o di e en g een asse s,
ou s udy u he con ibu es o b oadening he scope o he g een inance li e a u e, which
has adi ionally ocused mo e on bonds and c oss-ma ke asse analysis. This ime- a ying
app oach allows us o cap u e he dynamic na u e o he ela ionship be ween g een and
con en ional ma ke s, p o iding a mo e nuanced unde s anding o he impac o g een
inance on global ma ke s o e ime. Finally, ou p oxy o he global equi y ma ke , he
S&P Global B oad Ma ke Index, adds o he exis ing empi ical li e a u e by p o iding a
comp ehensi e o e iew o bo h de eloped and eme ging ma ke coun ies, acking o e
99% o i s 49 cons i uen coun ies’ a ailable ma ke capi aliza ion. This comp ehensi e
co e age enables us o d aw mo e gene alizable conclusions abou he impac o g een
inance on global equi y ma ke s.
The emainde o he pape is o ganized as ollows: Sec ion 2discusses ela ed li e a-
u e; Sec ion 3p esen s he analy ical amewo k, discussing he TVP-VAR connec edness
app oach’s me i s; Sec ion 4p o ides de ailed in o ma ion and desc ip i e s a is ics o he
Economies 2024,12, 83 3 o 16
selec ed sample da ase ; Sec ion 5discusses he empi ical esul s, compa ing he impac o
di e se g een indices on he global ma ke ; inally, Sec ion 6concludes he pape by sum-
ma izing he s udy’s con ibu ions and implica ions in he b oade con ex o g een inance.
2. Rela ed Li e a u e
The ecen li e a u e has highligh ed he ascending ajec o y o g een inance, inc eas-
ingly ocusing on ins umen s such as g een bonds and equi y indices. This end ep esen s
a b oade shi in he inancial sec o , e lec ing he g owing in eg a ion o in es o s’ en i-
onmen al p e e ences, as e idenced by he p emium o en commanded by g een asse s
(MacAskill e al. 2021;Ze bib 2019). G een inance ins umen s a e inc easingly seen as no
jus inancial ools bu as symbols o commi men o sus ainable de elopmen and ca alys s
o g een inno a ion. They incen i ize en i onmen ally conscious co po a e p ac ices
and echnological ad ancemen s, he eby me ging economic incen i es wi h sus ainabili y
goals (B oads ock e al. 2022). An in luen ial s udy by (Zhou e al. 2020) posi ioned g een
inance as a c i ical nexus ha b idges he gap be ween economic and en i onmen al
objec i es. Thei esea ch sugges s ha aligning mone a y incen i es wi h en i onmen al
sus ainabili y can signi ican ly in luence co po a e beha io , d i ing a shi owa ds mo e
sus ainable business ope a ions. This alignmen is e iden in how g een inance channels
in es men s in o p ojec s p omo ing enewable ene gy, low-ca bon anspo a ion, and
clima e change mi iga ion, unde sco ing he business logic behind he adop ion o sus-
ainable p ac ices. Recen s udies co obo a e his, showing a angible link be ween g een
asse s and ad ancemen s in enewable ene gy and ca bon emission educ ions (Alamgi
and Cheng 2023;Jiang e al. 2023).
Despi e i s p omising ole, he g een inance sec o , including g een equi y, is no
wi hou complexi ies and c i iques. A key a ea o deba e in ol es unde s anding he
mo i a ions behind co po a e and in es o engagemen in g een inance. Ques ions a ise
abou whe he such engagemen s e lec a ue commi men o en i onmen al sus ainabili y
o a e me ely s a egic maneu e s o enhancing co po a e image (Du o doi e al. 2023).
Da a anspa ency emains a c i ical issue wi hin he b oade inancial ecosys em, and
is pa icula ly i al due o he co-mo emen s cha ac e izing hese ma ke s (Rebo edo
2018). Conce ns abou po en ial agency p oblems su ace as well, pa icula ly ega ding
i ms ha p o ess social esponsibili y. The e a e app ehensions ha such i ms migh
p io i ize manage ial bene i s a he expense o sha eholde in e es s (Tang and Zhang
2020). Fu he mo e, he inhe en na u e o g een inance, which emphasizes long- e m
en i onmen al goals, o en clashes wi h sho - e m inancial impe a i es. This dicho omy
becomes inc easingly challenging o manage in dynamic en i onmen al con ex s, whe e
ac o s such as ai pollu ion, public conce n, and economic de elopmen can swi ly shi
he landscape (He and Shi 2023;Zhou e al. 2020).
Ex ensi e esea ch has been dedica ed o unde s anding he global impac o g een
ma ke s, pa icula ly ocusing on he ansmission channels be ween g een and con en-
ional asse s. This body o wo k aims o asce ain how g een inance’s con ibu ions o
sus ainabili y a e e lec ed in he alua ion o g een asse s and hei in e ac ions wi h
con en ional coun e pa s. The connec edness o g een asse s o a ious inancial sec o s
is seen as a key indica o o he inc easing in eg a ion o sus ainabili y p inciples in o
he b oade inancial a chi ec u e (Rebo edo and Ugolini 2020). Such in luence signi ies
shi ing ma ke p e e ences, whe e sus ainabili y becomes a cen al conside a ion in in es -
men decisions, po en ially p omp ing no able shi s in adi ional equi y po olios and
unde sco ing he ans o ma i e po en ial o g een inance (Tang and Zhang 2020).
The empi ical li e a u e sheds ligh on he cu en pa e n o in eg a ion, pa icula ly
ac oss di e en ma ke asse s and segmen s. High le els o in eg a ion and spillo e s
ha e been documen ed be ween g een and con en ional s ocks (Lundg en e al. 2018),
clean ene gy and s ock p ices (Nguyen e al. 2021), g een and co po a e bond ma ke s
(Fe e e al. 2021;Gao e al. 2021;Rebo edo 2018), g een and easu y bond ma ke s
(
Fe e e al. 2021
;Rebo edo 2018), g een bond and s ock ma ke s (Tang and Zhang 2020;
Economies 2024,12, 83 4 o 16
Zhang and Umai 2023), g een bonds and commodi ies (Naeem e al. 2021a), and g een
bond and cu ency ma ke s (Naeem e al. 2021a;Rebo edo and Ugolini 2020). Howe e ,
he na u e and di ec ion o he ansmission channels a e subjec s o ongoing deba e. While
some esea che s a gue o he g owing in luence o g een asse s on adi ional ma ke s
(Chai e al. 2022;Lundg en e al. 2018;Tang and Zhang 2020), o he s sugges ha he
in luence p edominan ly lows om con en ional o g een ma ke s (Hammoudeh e al.
2020;Mensi e al. 2022;Pham 2016;Rebo edo 2018;Rebo edo and Ugolini 2020). This
di e gence in indings poin s o he complex and dynamic ela ionship be ween g een and
con en ional inance, in luenced by ac o s such as ex e nal e en s and ma ke condi ions
(Jiang e al. 2023;Zhang e al. 2023). S udies ha e u he sugges ed ha he spillo e
e ec s be ween g een and adi ional ma ke s a e asymme ic (Naeem e al. 2021a,2021b;
Pham and Nguyen 2021
;Saeed e al. 2021;Wang e al. 2022) and ime- a ying (A i e al.
2021;B oads ock and Cheng 2019;Ka im and Naeem 2022;Naeem and Ka im 2021;Pham
2016;Wang e al. 2022).
The he e ogenei y obse ed in he exis ing esea ch on g een inance can be a ibu ed
o wo key ac o s: he dis inc dynamics o a ious g een asse classes, and he po en ial
o e sigh o common o uncon olled ac o s in luencing ma ke beha io . In addi ion,
he in e ac ion be ween g een and con en ional ma ke s adds a laye o complexi y o
he in e p e a ion o spillo e s wi hin he g een inance sec o . Fo example, spillo e s
iden i ied wi hin egional g een ma ke s, such as hose in Asia, migh ac ually be indica i e
o he in e connec edness p e alen in he con en ional ma ke s o hose egions. Addi-
ionally, Pham (Pham and Nguyen 2021) highligh ed ha , a e accoun ing o mo emen s
in gene al s ock, ene gy, and ixed-income ma ke s, he co ela ion be ween g een bonds
and g een equi y appea s ela i ely mino unde ypical ma ke condi ions. This inding
p omp s a c i ical ques ion: a e he in e ac ions obse ed in g een inance p ima ily d i en
by unique “g een e ec s”, o do hey simply mi o he s anda d dynamics seen in b oade
ma ke ac i i ies? The me hodologies and me ics employed in hese s udies, encompassing
co e age, agg ega ion, sco ing, and epo ing, u he complica e in e p e a ions, indica ing
he need o a ca e ul and nuanced analysis o such esul s.
Common ac o s ha in luence bo h g een and con en ional asse s, such as policy and
egula ion, mac oeconomic condi ions, geopoli ical e en s, and shi s in in es o sen imen ,
play a signi ican ole as well, especially when hey ha e an asymme ical impac on hese
ma ke s (Duan e al. 2023;Zhang and Umai 2023). Policy unce ain y can cas a long
shadow o e in es men s a egies, in luencing he alloca ion o capi al be ween g een
and con en ional asse s (D agomi escu-Gaina e al. 2021). When he u u e di ec ion o
egula ions emains unclea , in es o s may hesi a e o commi unds o g een p ojec s,
ea ing po en ial policy changes ha could unde mine he iabili y o hei in es men s.
The in oduc ion o subsidies, ax b eaks, o o he suppo i e measu es can signi ican ly en-
hance he inancial a ac i eness o g een p ojec s, d awing in mo e in es o s and d i ing
up demand o g een asse s; o example, go e nmen g an s o esea ch and de elopmen
in clean ene gy echnologies can accele a e inno a ion, leading o b eak h oughs ha make
enewable ene gy mo e compe i i e wi h con en ional sou ces. Simila ly, he s eamlining
o licensing p ocesses o g een p ojec s can educe ba ie s o en y, encou aging mo e
companies o en u e in o he sus ainable ene gy sec o . As he ela i e p o i abili y o
g een in es men s imp o es, capi al may low mo e eadily om con en ional o g een
asse s, al e ing he dynamics o spillo e e ec s be ween hese ma ke s. Howe e , he
impac o policy changes on g een in es ing is no always s aigh o wa d. The in oduc-
ion o new egula ions o he igh ening o exis ing ones can also c ea e challenges o
g een p ojec s. Fo ins ance, s ic e en i onmen al s anda ds may inc ease compliance
cos s o companies ope a ing in he sus ainable ene gy sec o , po en ially e oding hei
p o i abili y and making g een in es men s less a ac i e. Simila ly, changes in in ellec ual
p ope y laws o he expi a ion o key pa en s can al e he compe i i e landscape o g een
echnologies, a ec ing he alue o g een asse s and he spillo e e ec s be ween g een and
con en ional ma ke s.
Economies 2024,12, 83 5 o 16
To mi iga e hese complexi ies, ou s udy adop s a wo-p onged app oach. Fi s , we
mo e he analysis o a global pe spec i e, which allows us o anscend he limi a ions o
egion-speci ic policies, egula ions, and o he common ac o s and o cap u e he b oade
ends shaping global g een inance. Second, we employ a ime- a ying app oach using
he TVP-VAR model, enabling us o de ec and analyze he e olu ion o global ma ke
ends and he impac o empo al e en s and shocks on he ela ionship be ween g een
and con en ional ma ke s. This dynamic amewo k p o ides a mo e accu a e and imely
assessmen o spillo e e ec s, empowe ing global in es o s and policymake s o make
in o med decisions in esponse o shi ing ma ke condi ions.
3. Me hodology
This s udy adop s a ime- a ying pa ame e ec o au o eg ession (TVP-VAR) ap-
p oach, as p oposed by (An onakakis e al. 2020), which is an ex ension o he dynamic
connec edness model o iginally pu o wa d by (Diebold and Yilmaz 2009). G ounded on a
VAR amewo k, his o iginal me hodology was designed o model nonlinea ansmission
channels. This is achie ed by aking ad an age o Impulse Response Func ions and Fo ecas
E o Va iance Decomposi ions, which in u n enable he iden i ica ion o eedback loops
ac oss he en i e ne wo k. The TVP ex ension enables bo h he coe icien s and he e o
co a iance ma ices o change o e ime. Such adap abili y b ings wo p ima y bene i s
o ou s udy. Fi s , i sides eps he o en-p oblema ic ask o ha ing o selec an op imal
olling window size wi hou a clea a ionale. Second, i p e en s he exclusion o aluable
da a poin s, making he me hodology pa icula ly well sui ed o analyses wi h smalle
sample sizes. As pa o implemen ing his me hodology, we ha e made p o isions o
a iance o unde go modi ica ions ia a Kalman Fil e es ima ion, inco po a ing o ge ing
ac o s (κ1= 0.99, κ2= 0.99); he TVP-VAR model is ou lined as ollows:
y =C1, y −1+· · · +Cp, y −p+µ ,µ |ρ −1∼ N (0, τ )(1)
ec(C ) = ec(C −1) + γ ,γ |ρ −1∼ N (0, ε )(2)
whe e
y
is an
n×
1 ec o o endogenous a iables,
Cj,
( o
j=
1,
. . .
,
p
) a e
n×n
ma ices
o ime- a ying coe icien s, and
ρ −1
se es o encapsula e all he da a a ailable up o
poin
−
1. Shi ing ou ocus o he e o e m,
µ
is a
n×
1 ec o ha houses po en ial
he e oskedas ic inno a ions. Addi ionally,
γ
is ep esen ed as an
np ×
1 dimensional
ec o . The ime- a ying a iance–co a iance ma ices
τ
and
ε
a e
n×n
and
n2p×n2p
dimensional ma ices, espec i ely. The ec o iza ion o
C
, as depic ed by
ec(C )
, is an
n2p×1 dimensional ec o .
An essen ial ans o ma ion akes place o help analyze he impac o shocks emana ing
om a pa icula index and how hey in luence one ano he . To achie e his, he TVP-VAR
model is adep ly modi ied in o i s mo ing a e age (VMA) coun e pa . This ans o ma ion
inds i s ounda ion in he Wold heo em:
y =
∞
∑
j=0
Aj, µ −j(3)
whe e
A0,
is an iden i y ma ix o size
n×n
. The ma ix
Aj,
ep esen s he ime- a ying
impac o a one- ime shock o he inno a ions
µ
on u u e alues o
y
. The coe icien s in
Aj, a e compu ed ecu si ely using
Aj, =C1, Aj−1, +C2, Aj−2, +· · · +Cj, . (4)
Economies 2024,12, 83 6 o 16
Upon success ully ansi ioning o he VMA ep esen a ion, we make use o he
gene alized impulse esponse unc ions (GIRF), which enables us o quan i a i ely gauge
how any gi en a iable wi hin he sys em esponds when subjec ed o ex e nal shocks:
ωij, (H) =
H
∑
j=0 Aj, ∑
dj!Σ−1
2
jj, (5)
whe e
ωij, (H)
ep esen s he impac o a shock in a iable
j
on a iable
i
o e ho izon
H
a ime
,
dj
is a selec ion ec o wi h one in he
j
- h posi ion and ze os elsewhe e, and
Σjj,
is he a iance o he
j
- h e o e m a ime
. The u ili y o he GIRF becomes e iden ,
as i p o ides a clea lens o comp ehend he ipple e ec s o sec o - ocused shocks as
hey jou ney ac oss he comple e sys em a any designa ed imes amp. When we look o
he ho izon o an
H
-s ep ahead, he gene alized o ecas e o a iance decomposi ion
quan i ies a iable
j
on a iable
i
in e ms o i s o ecas a iance sha e, and is compu ed
as ollows:
θij, (H) = ∑H−1
=1ω2
ij,
∑n
i=1∑H−1
=1ω2
ij,
. (6)
Nex , we p oceed o calcula e he To al Connec edness Index (TCI). This index p o ides
comp ehensi e insigh in o he magni ude o in luence ha a shock o igina ing om one
speci ic a iable exe s on o he a iables wi hin he sys em:
TCI (H) = ∑n
i,j=1,i=jθij, (H)
∑n
i,j=1θij, (H)×100. (7)
Th ough he TCI, we can unde s and and isualize he deg ee o in e linkages and
he ansmission o shocks ac oss he en i e y o he a iables in ques ion. To del e deepe
in o di ec ional connec edness, we spli he o al di ec ional connec edness in o h ee
componen s: o al di ec ional connec edness o o he s (TO), o al di ec ional connec edness
om o he s (FROM), and ne o al di ec ional connec edness (NET):
TOi, (H) = ∑n
j=1,i=jθji, (H)
∑n
i,j=1θji, (H)×100, (8)
FROMi, (H) = ∑n
j=1,i=jθij, (H)
∑n
i=1θij, (H)×100, (9)
NETi, (H) = TOji, (H)−FROMij, (H). (10)
To p o ide a mo e de ailed unde s anding o he in e ela ionships wi hin he sys em,
we b eak down he ne o al di ec ional connec edness (NET) h ough he ne pai wise
di ec ional connec edness (NPDC). This decomposi ion acili a es a close examina ion
o he bidi ec ional ies be ween a iables. The ma hema ical ep esen a ion o NPDC is
p o ided by
NPDCij, (H) = (θji, (H)−θij, (H)) ∗100. (11)
When
NPDCij(H)>
0, his indica es ha a iable
i
holds a domina ing in luence
o e a iable
j
. Con e sely, when (
NPDCij(H)<
0), his sugges s ha a iable
i
is mo e
in luenced by a iable
j
. This b eakdown o e s a g anula pe spec i e on he powe
dynamics be ween he a iables.
Economies 2024,12, 83 7 o 16
4. Da a
Ou da a ga he ime se ies om g een equi y indices and he co esponding global
equi y index. The selec ion o g een equi y indices consis s o he S&P Global Clean Ene gy
Index, he S&P Global Wa e Index, and he S&P Global Eco Index, which a e widely
p esen in he G een Finance li e a u e (Liu e al. 2021;Madaleno e al. 2022;Nguyen e al.
2021;Tiwa i e al. 2022;Wang e al. 2022). The s ocks pe aining o each index mus be a
membe o he pa en S&P Global B oad Ma ke Index (BMI), which spans 49 de eloped
and eme ging ma ke coun ies and mo e han 14,000 companies, acking o e 99% o
each cons i uen coun y’s a ailable ma ke capi aliza ion. Labeled as sus ainable indices,
he h ee g een equi y indices display di e en ea u es which a e ele an o he pu pose
o he p esen analysis. The S&P Global Clean Ene gy Index measu es he pe o mance
o 100 companies in ol ed in he p oduc ion o clean ene gy o he p o ision o clean
ene gy echnology and equipmen . Companies a e chosen based on an exposu e sco e
o he clean ene gy heme p o ided ha hey do no exhibi a high ca bon oo p in - o-
e enue sco e. The S&P Global Wa e Index a ge s companies in ol ed in wa e - ela ed
businesses, including he Wa e U ili ies and In as uc u e and Wa e Equipmen and
Ma e ials sec o s. Selec ed companies mus ul ill ma ke cap and liquidi y condi ions,
and a e o de ed acco ding o a sco e measu ing exposu e o he indus y. The S&P Global
Eco Index depa s om he p e ious indices by no ocusing on a pa icula indus y,
as i is comp ised o 40 o he la ges publicly aded companies in six di e en clus e s
ep esen ing ecology- ela ed indus ies. This b oad-band composi ion has he po en ial o
be e insula e he index om speci ic indus y- ela ed shocks and p o ide a wide pic u e
o he in luence o ecology- ela ed ma ke s.
Ou sample is comp ised o a decade o daily da a, spanning om 1 Augus 2013 o
31 July 2023 (2608 daily obse a ions). The da a we e ob ained di ec ly om he S&P Global
websi e, and consis o p ice e u n indices denomina ed in US Dolla s, which ha e been
e-based o 100 a he s a o he sample pe iod (1 Augus 2013). The e y ew missing
obse a ions we e handled by linea ly in e pola ing he p e ious and o wa d obse a ions.
As we a e in e es ed in measu ing he ola ili y spillo e s be ween he indices, we begin by
compu ing daily e u ns in log o m. Table 1p o ides a comp ehensi e s a is ical o e iew
o daily e u ns o he S&P BMI, S&P Eco, S&P Wa e , and S&P Clean Ene gy indices. The
posi i e mean e u ns o all indices indica e a consis en g ow h end, wi h he S&P Clean
Ene gy index leading a 0.037%. When obse ing ola ili y h ough a iance, he S&P Clean
Ene gy index eme ges as he mos ola ile, wi h a a iance o 2.135, while he S&P BMI
is he mos s able. All o he indices display nega i e skewness, sugges ing a le -skewed
e u n dis ibu ion, wi h he S&P BMI being he mos nega i ely skewed. In e ms o
ku osis, all he indices ha e posi i e alues, implying a e ails han a s anda d no mal
dis ibu ion, wi h he S&P BMI showing he mos ex eme e u ns. The Ja que–Be a (JB)
es consis en ly ejec s no mal dis ibu ion ac oss all indices, unde sco ing he non-no mal
na u e o hei e u ns. Engle’s LM Tes (ERS) and he Ljung–Box Tes (Q(20) and Q2(20))
poin o condi ional he e oskedas ici y and au oco ela ion in he e u ns, espec i ely. The
Kendall’s Tau coe icien s se e as a measu e o he uncondi ional co ela ion be ween he
indices, o e ing nonpa ame ic insigh in o hei in e dependencies. A no able posi i e
associa ion ac oss all indices unde sco es he in e connec ed na u e o hese ma ke s.
Speci ically, he S&P Wa e and S&P BMI indices sha e he mos p o ound connec ion, wi h
a coe icien o 0.652, hin ing a possible sha ed economic d i e s o mu ual eac ions o
global ma ke e en s. Con e sely, he S&P Clean Ene gy and S&P Wa e indices display
a weake co ela ion le el, sugges ing highe po en ial di e si ica ion oppo uni ies o
in es o s looking o mi iga e isks.
Economies 2024,12, 83 8 o 16
Table 1. Summa y s a is ics.
S&P BMI S&P Eco S&P Wa e S&P Clean Ene gy
Mean 0.028 0.034 0.035 0.037
(0.108) (0.099) (0.068) (0.201)
Va iance 0.787 1.114 0.937 2.135
Skewness −0.975 −0.425 −0.529 −0.203
(0.000) (0.000) (0.000) (0.000)
Ex.Ku osis 16.796 11.632 13.965 8.076
(0.000) (0.000) (0.000) (0.000)
JB 31,069.536 14,782.194 21,313.510 7105.641
(0.000) (0.000) (0.000) (0.000)
ERS −7.799 −7.772 −10.980 −9.552
(0.000) (0.000) (0.000) (0.000)
Q(20) 114.859 116.986 116.362 102.322
(0.000) (0.000) (0.000) (0.000)
Q2(20) 2158.259 3085.223 3085.791 1534.497
(0.000) (0.000) (0.000) (0.000)
kendall S&P BMI S&P Eco S&P Wa e S&P Clean Ene gy
S&P BMI 1.000 0.576 0.652 0.498
S&P Eco 0.576 1.000 0.633 0.623
S&P Wa e 0.652 0.633 1.000 0.442
S&P Clean Ene gy 0.498 0.623 0.442 1.000
No es: This able shows he summa y s a is ics o he h ee g een equi y indices and he global equi y index.
’kendall’ deno es he uncondi ional Kendall co ela ions be ween he s udied a iables (sample: 1 Augus 2013–31
July 2023).
5. Resul s and Discussion
Ou analysis, illus a ed in Figu e 1, ocuses on he dynamic To al Connec edness
Index (TCI) among equi y indices. This index, calcula ed using a VAR model o leng h
1 as pe he Bayesian In o ma ion C i e ion, looks a a 10-day-ahead ime ho izon. The
esul s indica e a signi ican le el o in eg a ion among he indices, wi h TCI peaking a
73% in Ma ch 2020 and main aining a minimum o 53% in Janua y 2018. This consis-
en ly high le el o connec edness, luc ua ing wi hin a band o 20 pe cen age poin s o e
mo e han 2600 ading days, aligns wi h he concep o ime- a ying in e connec edness
among g een asse s as sugges ed by (B oads ock and Cheng 2019), (Naeem e al. 2021a),
(Wang e al. 2022), (Ka im and Naeem 2022), (Tiwa i e al. 2022), and (Pham 2016).
0
25
50
75
100
2014 2016 2018 2020 2022 2024
Figu e 1. Dynamic To al Connec edness Index ( he shaded a ea co esponds o pandemic pe iod: Jan
2020–Jul 2022).
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