The impact of oil price fluctuations on green bonds

Abstract

This dissertation investigates the relationship between oil price fluctuations and green bond returns. A two-step linear regression model is used to test the hypotheses that oil price fluctuations have a significant impact on green bond returns and that green bonds can be used as hedging instruments against oil price fluctuations. Based on daily returns between 2021 and 2022 from a sample of 58 green bonds, the direct impact of oil price fluctuations on green bond returns is first examined. Model 1 shows a significant relationship between oil price fluctuations and green bonds. But this cannot be confirmed in Model 2, taking into account other independent variables, including the returns of WTI crude oil, the stocks of green bond issuers, and the MSCI World index, as well as their volatilities. However, the inclusion of the volatility of WTI proves to have a significant negative effect on the returns of green bonds. By considering other significant variables or directly including the volatility of WTI, the impact of oil price fluctuations on the returns of green bonds may become less significant. Therefore, both hypotheses can only be confirmed indirectly.

Date of Award	19 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)