Dynamic Spillovers Between Green Bonds and Global Financial Markets: The Amplifying Effect of Climate Policy Uncertainty

This paper uses monthly data from January 2015 to January 2025 to systematically quantify the impact of CPU on dynamic risk contagion between international green bonds and the bond and energy markets. This is achieved by applying the DieboldYilmaz (2012) generalized vector autoregression (VAR) spillover framework alongside the BarunkKehlk (2018) frequency domain decomposition method. The empirical results reveal that the total spillover index of the four-variable system (30.50%) exhibits asymmetric directionality, whereby rising CPU significantly amplifies the volatility spillover from green bonds to the bond and energy markets. Peak spillovers of 75% were observed during periods of crisis, suggesting that CPU shocks reduce the risk aversion of green bonds and create cross-market linkages via the discount rate and risk premium channels. These findings provide investors with empirical evidence to inform hedging strategies with green bonds during periods of high CPU, and enable regulators to implement dynamic asset portfolio regulation.