Connectedness among green sectoral equities under extreme and normal market conditions: evidence from a quantile VAR approach

Abstract Interest in green investments has been rising, particularly in stocks from various eco-friendly sectors aimed at addressing climate change and environmental issues. However, the relationships among these sectors under different market conditions have been seldom explored. Thus, this study examines the interconnectedness of green sector equities in both stable and extreme market conditions, employing the quantile VAR methodology. The daily data, covering the period from October 15, 2010, to September 30, 2023, include several periods of economic downturn. The results indicate that under normal and bullish market conditions, the energy efficiency, water, and recycling sectors serve as the main channels for net risk transmission. Conversely, during bearish market conditions, energy efficiency, green transportation, and lighting sectors assume this role. Across all market conditions, the bio/clean fuels, natural resources, and healthy living sectors act as the primary net shock absorbers. Furthermore, total connectedness is significantly higher during extreme market conditions than in stable environments. The dynamic quantile analysis further confirms the time-varying nature of connectedness among green equities, which intensifies in response to crisis events, such as the COVID-19 pandemic. These findings provide valuable insights for investors and policymakers, aiding in portfolio management and supporting effective regulation and stability within the green equity market across diverse market conditions.