How do the uncertainties affect the connectedness between the green bond market and conventional financial markets? Evidence from the Russian-Ukrainian war

Vilija Aleknevičienė; Algirdas Justinas Staugaitis; Rugilė Gudaitienė; Asta Bendoraitytė; Vilija Aleknevičienė; Algirdas Justinas Staugaitis; Rugilė Gudaitienė; Asta Bendoraitytė

doi:10.3934/GF.2025024

Green Finance

2025, Volume 7, Issue 4: 634-660. doi: 10.3934/GF.2025024

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Research article

How do the uncertainties affect the connectedness between the green bond market and conventional financial markets? Evidence from the Russian-Ukrainian war

Department of Applied Economics, Finance and Accounting, Vytautas Magnus University, Universiteto street 10, LT-53361, Akademija, Kaunas district, Lithuania

Received: 24 April 2025 Revised: 26 September 2025 Accepted: 23 October 2025 Published: 24 October 2025
JEL Codes: G15, G01, G11

In this study, we address the dynamics of connectedness between the green bond market and conventional financial markets during crisis periods and uncertainty factors influencing it. Recently, most researchers have focused on the impact of uncertainties on green bond, green finance, and conventional bond markets, and only a few of them on the impact of uncertainties on the connectedness of financial markets. Moreover, this phenomenon is underexplored during crisis periods. In response to this, we assessed the change in the connectedness between green bond and conventional financial markets, as well as the impact of uncertainties on connectedness during the Russian-Ukrainian war. The Diebold and Yilmaz's (2012, 2014) spillover index was used to assess the connectedness between green bond and conventional financial markets. Dynamic model averaging (DMA), proposed by Koop and Korobilis (2012), was applied to assess the impact of uncertainties on the connectedness. The study revealed that the total spillover index increased significantly during the Russian-Ukrainian war. Moreover, the green bond market was a receiver of shocks during the pre-war period, but a transmitter during the war period. This may indicate that it has become a less predictable and more sensitive market. Total spillover was positively affected by Economic Policy Uncertainty (EPU) and Twitter-Based Economic Uncertainty (TEU) indices, and negatively by Geopolitical Risk (GPR) and Volatility (VIX) indices. Uncertainties increased with the start of the war. The GPR index peaked the most. All uncertainty indices had a greater impact on total spillover during the war. The greater impact can be explained by increased market sensitivity, rising levels of financial stress, shifts in investor behavior, and the accelerated dissemination of information during times of crisis. The findings provide implications for portfolio managers in terms of risk management and portfolio decisions at a global level.
- green bond market,
- conventional financial markets,
- connectedness,
- uncertainties,
- economic crises
Citation: Vilija Aleknevičienė, Algirdas Justinas Staugaitis, Rugilė Gudaitienė, Asta Bendoraitytė. How do the uncertainties affect the connectedness between the green bond market and conventional financial markets? Evidence from the Russian-Ukrainian war[J]. Green Finance, 2025, 7(4): 634-660. doi: 10.3934/GF.2025024

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Abstract

In this study, we address the dynamics of connectedness between the green bond market and conventional financial markets during crisis periods and uncertainty factors influencing it. Recently, most researchers have focused on the impact of uncertainties on green bond, green finance, and conventional bond markets, and only a few of them on the impact of uncertainties on the connectedness of financial markets. Moreover, this phenomenon is underexplored during crisis periods. In response to this, we assessed the change in the connectedness between green bond and conventional financial markets, as well as the impact of uncertainties on connectedness during the Russian-Ukrainian war. The Diebold and Yilmaz's (2012, 2014) spillover index was used to assess the connectedness between green bond and conventional financial markets. Dynamic model averaging (DMA), proposed by Koop and Korobilis (2012), was applied to assess the impact of uncertainties on the connectedness. The study revealed that the total spillover index increased significantly during the Russian-Ukrainian war. Moreover, the green bond market was a receiver of shocks during the pre-war period, but a transmitter during the war period. This may indicate that it has become a less predictable and more sensitive market. Total spillover was positively affected by Economic Policy Uncertainty (EPU) and Twitter-Based Economic Uncertainty (TEU) indices, and negatively by Geopolitical Risk (GPR) and Volatility (VIX) indices. Uncertainties increased with the start of the war. The GPR index peaked the most. All uncertainty indices had a greater impact on total spillover during the war. The greater impact can be explained by increased market sensitivity, rising levels of financial stress, shifts in investor behavior, and the accelerated dissemination of information during times of crisis. The findings provide implications for portfolio managers in terms of risk management and portfolio decisions at a global level.

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