This paper applies the time-varying parameter-stochastic volatility-vector auto-regression (TVP-SV-VAR) method to explore the correlations among China’s climate policy uncertainty (CPU), green stock (GS), and green bond (GB). The findings evidence dynamic impacts from CPU to the green assets, indicating that the hedging ability of green assets varies over time. In the short and medium term, the GS may hedge the rising CPU risks effectively while the GB is not. However, in the long term, both the GS and GB may resist the CPU risks, although the GS is found to perform better. Furthermore, the results also suggest that the GS is more reliable when the unexpected shocks happen. Thus, compared to the GB, the GS may possess higher uncertainty risks hedging ability. Nevertheless, the results also suggest that the hedging ability of the GS decreases in recent years. The findings may help investors construct portfolios to hedge CPU risks. Moreover, the results suggest that the government should further promote the standardisation of green investment and reduce the information asymmetry of climate policy, which is critical to improve the performance of green assets.
Cao et al. (Tue,) studied this question.