GREENING DEBT CAPITAL MARKETS: LESSONS FROM THE GREEN BOND AND GREEN SUKUK MARKETS

Abstract

Climate change, environmental degradation, and the frequent crisis affected the financial ecosystem in a way that manifests reliance on traditional assets cannot sustain the stability of investment portfolios or the wider financial system. Investors and regulators were compelled to search for alternative assets that are better positioned to offer competitive risk-adjusted returns, improve liquidity risk management, and enhance the stability of the financial system. To this end, this dissertation analytically and empirically assesses the risk management capacity of green bonds and green sukuk. The analytical analysis follows the bibliometric methods complemented by systematic review of the literature of green bond interconnectedness with other markets to delineate the landscape of research trends in the literature of green bonds and visualize a comprehensive overview of existing evidence on green bonds’ diversification, hedge, and safe-haven traits. In the empirical analysis, using data spanning from 2017 to 2022, the research assesses the qualification of sovereign green bonds as high-quality liquid assets (HQLA) via the DCC-GARCH and Ratner and Chiu models. Additionally, the research adopts the wavelet coherence and Spillover indexes to investigate the dynamic relation between the green sukuk and the commodity and cryptocurrency markets between December 2019 and March 2022. The findings of DCC-GARCH and Ratner and Chiu models reported weak safe-haven properties of sovereign green bond and low correlations between the sovereign green bond and risky assets, validating its potential as HQLA. The results of the wavelet coherence and spillover index reveal the intensity of markets’ connectedness in the short run at the onset of the covid-19 prompting temporal markets’ spillover. The study found evidence of diversification properties for green sukuk in a portfolio of Bitcoin, Binance coin, gold, and silver in the long run.

Date of Award	2023
Original language	American English
Awarding Institution	HBKU College of Islamic Studies