Asymmetric return and volatility spillovers between sustainable finance indexes, green energy markets and equity markets

This study investigates return and volatility spillovers among the S&P Green Bond Index, S&P Global 1200 Carbon Efficient Index, S&P Global 1200 ESG Index, MAC Global Solar Energy Index, S&P Global Clean Energy Index, MSCI World Index, and MSCI Emerging Markets Index over the period from 30/06/2014 to 22/07/2024. Using a Vector Autoregressive–Exponential Generalized Autoregressive Conditional Heteroskedasticity (VAR-EGARCH) model, the study examines the dynamic interlinkages between sustainable finance indexes, energy markets, and global equity markets. The findings reveal that return spillovers between sustainable finance indexes and equity market indices are bidirectional, whereas no return spillovers are observed between energy markets and equity markets. Additionally, there is a statistically significant and positive return spillover from the MSCI World Index, representing developed equity markets, to sustainable finance indices. In terms of volatility dynamics, all markets are significantly and positively affected by their own shocks. Moreover, positive volatility spillovers are identified from energy markets to sustainable finance indices, while no spillovers are detected towards equity markets. Furthermore, shocks originating from developed equity markets increase volatility in energy markets but have no significant effect on emerging equity markets. The study contributes to the literature by offering a comprehensive and comparative analysis of return and volatility spillovers across heterogeneous sustainable finance indexes, energy markets and global equity markets, providing important implications for international portfolio diversification strategies in both developed and emerging markets. The findings suggest that sustainable finance indices can be used as a diversification tool, but that energy-related volatility risks must be considered. Furthermore, understanding inter-market shock transmission is crucial for policymakers.