Risk Spillover Effects Between the U.S. and Chinese Green Bond Markets: A Threshold Time-Varying Copula-GARCHSK Approach

This paper develops a novel time-varying Copula model that conducts a GARCHSK model for marginal modeling and comprises threshold variables to model the joint distribution of returns. The new threshold time-varying Copula-GARCHSK model characterizes the higher-order moments of financial markets over time and captures the time-varying dependence mechanisms during simultaneous rises, oscillations, and simultaneous declines. An empirical analysis of the risk spillover effects between the U.S. and Chinese green bond markets, spanning from May 12, 2015, to June 13, 2023, is conducted using this model. The results show that the proposed threshold time-varying Copula-GARCHSK model effectively investigates the nonlinear time-varying dependence under these three different states and outperforms traditional time-varying Copula models. The asymmetric bidirectional risk spillover effects between the U.S. and Chinese green bond markets are evident with the new model, particularly showing a significant increase in risk spillover intensity when both markets decline simultaneously, with a more pronounced increase in risk spillover from the Chinese green bond market to the U.S. green bond market.