Research On The Time-varying Spillover Effect Of Policy Uncertainty And Green Financial Assets

The current climate issue has received attention from all over the world.China announced in 2020 that it would achieve "peak carbon" by 2030 and "carbon neutrality" by2060,aiming to address climate change and achieve green and low-carbon development.Green finance is an important tool to achieve the "double carbon" goal,and has environmental and climate-friendly attributes.The development of green finance is important for high-quality development.Green stock indices and green bonds are important components of the green financial system and have received a lot of attention from investors.However,the current development of the green financial market is not yet perfect,so good risk management of green investments is a top priority.The complex international situation in recent years has brought a higher level of policy uncertainty,which has had a negative impact on macroeconomic and micro behavior,but not all of them are negative,such as economic policy uncertainty may lead to innovation at the firm level.Therefore,it is important to study the spillover effects between different types of policy uncertainty and the returns of green financial assets.In this paper,we first review the relevant literature and theoretically analyze the possible spillover effects between policy uncertainty and the returns of green financial assets based on the theory of spillover effects and real options theory.In the empirical study,this paper collects monthly data of five types of policy uncertainty and three types of green financial assets returns from June 2010 to May 2022,and first quantifies the spillover effects between five types of policy uncertainty and three types of green financial assets returns using a frequency domain spillover index model based on TVP-VAR model,aiming to measure the spillover effects between the changes in green financial assets returns using generalized forecast error variance decomposition.The aim is to use the generalized forecast error variance decomposition to measure the share of the change in the return of green financial assets that is influenced by policy uncertainty.Next,a TVP-SV-VAR model is constructed with MCMC sampling method for parameter estimation,and a time-varying impulse response method is used to investigate the time-varying effects of five types of policy uncertainty shocks on the returns of three types of green financial assets.In addition,the cumulative impulse responses based on the benchmark VAR model are used to measure the cumulative impact of five types of policy uncertainty shocks on the returns of three types of green financial assets.Finally,this paper tests the robustness of the spillover index model by varying the forecast step,and the time-varying impulse responses based on the TVP-SV-VAR model and the cumulative impulse responses based on the benchmark VAR model by using the local projection impulse response method.The empirical results show that(1)each of the three types of green financial asset returns is subject to a net spillover effect from most types of policy uncertainty,and the spillover effects are time-varying and mostly short-term.(2)Among the different types of policy uncertainties,the green bond index has a higher hedging power against fiscal policy uncertainties in the short run,while the ESG300 and the Mainland low carbon indices have a stronger hedging power against trade policy uncertainties.In the long run,it is slightly different,with the ESG300 index having a higher hedging power against fiscal policy uncertainty.(3)The effects of the five types of policy uncertainty shocks on the returns of the three types of green financial assets are time-varying,and the cumulative effects are not all negative.The results of the robustness tests indicate that our results are robust.Based on the above findings this paper makes recommendations for policy makers and investors,respectively.On the one hand,this paper helps policy makers to clarify the possible impact of policy uncertainty on the green finance market,so that they can formulate policies prudently and thus prevent and mitigate the risks that policy uncertainty may bring to the green finance market.On the other hand,it helps investors to clarify the hedging ability of different types of green financial assets against different types of policy uncertainties and to manage the risk of green investment well.