The Roles of Economic Policy Uncertainty in Green Bond Market Efficiency: Evidence From QARDL Approach

Abstract

This paper explores the quantile-specific short and long-term effects of economic policy uncertainty, WTI crude oil price and carbon futures price on the efficiency of the green bond market. The QARDL method is applied to study this problem, considering the nonlinearity, asymmetry, and possible endogenous characteristics. The empirical results show that the effects of economic policy uncertainty, WTI crude oil price and carbon futures price are heterogeneous in different levels of green bond market efficiency. Before COVID-19, an interesting phenomenon was that economic policy uncertainty had a significant positive impact on the efficiency of the green bond market in the middle and low quantiles, which confirmed that under the condition of low uncertainty, green bonds could be used as a diversified investment tool to hedge the rising uncertainty. In addition, the positive impact of WTI crude oil price on the efficiency of the green bond market is greater in the short term. After the occurrence of COVID-19, economic policy uncertainty and WTI crude oil prices will no longer affect the efficiency of the green bond market in the short and long terms because of the failure of the market. While the significant positive effect of carbon emissions price is even stronger than before the COVID-19, which indicates that compared with other factors, the impact of carbon emission price on the efficiency of the green bond market is not affected by COVID-19. These results verify the short and long-term impact of EPU, WTI and CEA on the green bond market efficiency and how these effects are changed with the occurrence of COVID-19.

Keywords: Economic policy uncertainty, WTI crude oil price, Carbon emission price, QARDL