Green Bonds Connectedness with International Financial Markets: Dynamics of Time-Frequency Optimization towards Green Portfolio

Abstract

Green bonds, which cumulative have issued over $370 billion in 2023, represent a relatively new and increasingly popular type of investment not only in terms of financial performance, but also in its environmental impact and, accordingly, have provided you with a large portion of your sustainable investment portfolio. The study determines how green bonds and traditional asset classes in 10 years between 2014 and 2024 have changing dynamic interdependencies and reveals the time-varying correlation patterns of the two groups under both stable and distressed market conditions. The study provides the research with the support of a long historical time frame, which in turn supports the singular diversification merits and risk-adjusted resilience of green bonds and offers the key information on the timing of the allocation as well as the portfolio construction rationale to the investors. This study can contribute to the comprehension of the role of green bonds in the process of transition to a sustainable financial system, and it can be shown that these bonds can play a stabilizing role in financial markets at the time of financializing and instabilizing the situation in the world. The study insights will be crucial for policy-making, institutional investment and market participants to enhance asset allocation and promote sound low-carbon finance systems. Through more efficient regulatory systems and the development of sustainable finance programs, green bonds can play major role in taking the world towards a greener, more environmentally aware global economy.