Quantifying dynamic connectedness among diverse green and sustainable financial assets: Evidence from quantile-base VAR technique

• We explore the dynamic connectedness among diverse green financial assets. • Quantile VAR, network connectedness, and portfolio management strategies are used. • Connectedness between pairs of green assets is time-varying and regime-dependent. • Green assets exhibit hedging benefits for each other during extreme market states. • Green bonds and sustainability assets offer optimal hedging effectiveness. This study investigates the dynamic connectedness within diverse green financial assets, including new and unexplored ones. Employing a novel Quantile VAR (QVAR) and quantile pair-wise network spillover analyses, and portfolio management strategies, we investigate the interconnection under different market states and optimal portfolio structures of nine global green and sustainability-related indices. Our findings indicate that most green assets exhibit negative risk-adjusted values, with the green equity index outperforming others. The QVAR findings highlight that the interaction and spillover dynamics between pairs of green assets are contingent upon market conditions and investment horizons. Notably, during bearish and bullish market conditions, the connectedness between green asset pairs is relatively modest or insignificant, suggesting their efficacy as hedging and diversification instruments for each other. Furthermore, the volatility spillover among green assets exhibits variations over time in normal market conditions. Portfolio management strategies advocate allocating funds to green bonds and sustainability assets for optimal hedging effectiveness, with observed low hedge ratios in most green asset pairs. These findings offer valuable insights for investors in constructing efficient and diversified green portfolios. Additionally, policymakers can leverage these results to inform regulations and foster a transition towards a greener, zero-carbon economy and sustainable recovery post-COVID-19.