What causes the return and volatility spillover in Chinese green finance markets? A time-frequency perspective

This paper analyzes both return and volatility spillovers between green bonds, green stocks, clean energy, and carbon markets from April 28, 2014, to May 31, 2024, using the time-frequency connectedness methodology. Further, determinants of these spillovers are examined from perspectives of economic fundamentals (macroeconomics, inflation, and rate), market contagion (market volatility and investor sentiment), and uncertainties (EPU, CPU, GPR, and the COVID-19 pandemic) with the linear regression and quantile regression methods. Our investigation demonstrates that return and volatility spillovers exhibit significant crisis jumps during periods of financial turmoil. During most periods, both return and volatility spillovers occur predominantly in the short run. Second, green bonds and carbon markets show safe-haven characteristics as net risk recipients. Furthermore, economic fundamentals, market contagion, and uncertainty factors exhibit obvious impacts on both green finance market spillovers, albeit in differing magnitudes and directions. Notably, both return and volatility spillovers in the short and long run are determined by economic fundamentals, market contagion, and uncertainty variables. What’s more, these factors exhibit stronger interpretations of extreme return spillovers. These findings pose significant ramifications for risk mitigation and portfolio diversification for investors and authorities throughout Chinese green finance markets.