Is the Russian Green Bond Market Strong Enough to Hedge in the Crisis Times?

Ion  Frecautan

doi:10.17323/j.jcfr.2073-0438.18.2.2024.26-41

Ion Frecautan HSE University, Moscow, Russia https://orcid.org/0000-0003-1311-6275

DOI: https://doi.org/10.17323/j.jcfr.2073-0438.18.2.2024.26-41

Keywords: green bonds, Russian capital market, spillover, hedging, economic shocks

Abstract

The scope of this research has two facets. First, we study the spillover effects between the Russian green bonds and the leading capital market’s ‘indexes before and after the February 2022 events. Second, the identified level of asset connectedness permits to identify portfolio management implications for the analyzed assets. To reveal the spillover effects, we applied the vector autoregressive model and created a synthetic index to capture the dynamics of the green bonds market which included 14 green bond issues between 2021 and 2023 in Russia. We analyze oil & gas, electrical utilities, metals & extraction, chemical sectors collectively referred to as “pollution intensive indexes”. The paper contributes by discovering
that the total connectedness index (TCI) between Russian green bond market and pollution intensive indexes changed over time and increased after the outbreak of the conflict. Additionally, the paper is novel on revealing the relationship between low hedging effectiveness and hedging ratio of green bond and energy, metals and extraction, sustainability and oil and gas indexes which indicate no need for hedging after February events. The optimal bivariate portfolio weights analysis shows that Russian green bonds market is an outstanding instrument for assets portfolio management during geopolitical conflict. These findings have implications for the government and other stakeholders to manage both the contagion and climate risks during the military conflict.

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