Green Finance and its Relation to Asset Classes : Analyzing the dependency structure with a DCC-GARCH and a cross-quantilogram approach

Sammanfattning: In this master thesis, we present the first empirical study that investigates the correlation- and dependence structure of green finance with major asset classes such as cryptocurrency, commodities, equity and currency on a global level. Over the years, green finance and sustainability questions have become more and more central in the literature. By using daily data between 2013 and 2020, we aim to investigate the correlation and dependence structure between green finance and the elected asset classes. By utilizing a DCC-GJR-GARCH(1,1) model and a cross-quantilogram approach, we reach the conclusion that green finance has a decaying dependency over time, hence amplifying a diversification effect. The results also indicate a stronger tail-dependence during financial turmoil. In addition, our results imply a negative dependency to currency. We also observed similarities between the Asian and the American green economy market and its connectivity to our assets. We find implications that gold might not be considered a safe haven for all green finance indices. Finally, Bitcoin has a volatile dependency to green finance. Our assets present varying values at different quantiles for green finance which could have crucial implications for volatile market conditions and hedging purposes. Our results could therefore have important implications for policymakers, investors and for portfolio allocation decisions.