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This study employs the MultiFractal Dynamic Conditional Correlation (MF-DCC) model, incorporating three regional clean indices (US, Europe, and Asia) alongside the SP500 green bonds, to address the following research question: How does the correlation between green bonds (GBs) and clean energy (CE) equities behave and fluctuate across different market cycles and time horizons (short-term vs. long-term)? We show that there is a power law cross-correlation between green bonds and the three regional clean energy indices (the US, Europe, and Asia). Furthermore, multifractality was observed in all pairs that climb during bullish market conditions. These findings were available both before and after the COVID-19 pandemic. Thus, when creating environmentally friendly portfolios and assuring a shift from traditional to climate-resilient economies, investors and governments should consider the non-linear structure in the interaction between green bonds and clean stock markets.
Trabelsi et al. (Mon,) studied this question.