Are green bonds more resilient than conventional bonds in times of high market volatility?

Abstract

In recent years, the investment landscape has been reshaped by environmental crises and unprecedented events such as the COVID-19 pandemic. This thesis explores the dynamics between green bonds and treasury bonds in this altered scenario, aiming to guide investors in crafting strategies that align with their risk and return objectives during turbulent times. Utilizing a substantial dataset from the Refinitiv Eikon database, which includes detailed information on 432 green bonds from 2007 to May 2023, the study analyses the volatility dynamics of these bonds using the GARCH model. The findings indicate that green bonds tend to be a more stable investment option, although with lower returns compared to the potentially higher, yet riskier, returns of treasury bonds. The research highlights a notable negative correlation between the two bond types, suggesting that a mixed portfolio could offer a hedge against losses, providing stability in unstable markets. The study advocates for a balanced portfolio tailored to individual investor profiles to navigate the complex risk-return landscape effectively. Grounded in meticulous research, the thesis aims to be a valuable resource for investors, contributing to discussions on sustainable finance and environmental policy, and guiding stakeholders in fostering financial resilience in the face of environmental challenges.

Date of Award	27 Jun 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eva Schliephake (Supervisor)