Risk spillover and network connectedness analysis of green financial and related financial markets: evidence from China

Green finance is pivotal in mitigating climate change and promoting environmental sustainability. This paper examines the time and frequency risk spillover effects and network connectedness between China’s green financial markets (green bonds, green stocks, and carbon markets) and related financial markets. Methodologically, this paper integrates the Diebold and Yilmaz (DY) and Baruník and Křehlík (BK) spillover index approaches based on the time-varying parameter vector autoregressive (TVP-VAR) model with the complex network approach. This paper presents several key findings. First, the green bond and green stock markets predominantly act as net risk transmitters, while the carbon market serves as a net receiver. Second, significant bidirectional spillovers exist between the green bond and traditional bond markets and between the green stock and traditional stock markets, whereas the carbon market exhibits limited spillovers with other sectors. Third, long-term spillovers are more dominant than short- and medium-term effects. Fourth, the spillover effects display time-varying characteristics, with significant intensification during periods of crisis. Furthermore, network connectedness analysis identifies the green bond market as a central node within the risk spillover network. These findings offer critical insights for investors, policymakers, and regulators in advancing China’s green financial markets and achieving the global Sustainable Development Goals.