Summary of chapter 4

Introduction

 In this chapter, the study’s findings are presented and its goals are explored. The exploratory
examination of the green bond dataset, geopolitical risk and trade policy uncertainties datasets
are presented in this chapter

Descriptive statistics

 Figure 1 shows that all variables exhibit positive skewness in the data.
 With the exception of GBI, the variables demonstrate higher concentration around the mean or
display leptokurtic distributions, as indicated by their Kurtosis values exceeding 3, implying
heavier tails in the distributions.
 The Jarque Bera test confirms non-normality, revealing a 1% significant p-value, indicating
deviations from a normal distribution in the datasets.

Correlation Analysis

 In this analysis, the focus is on testing for multicollinearity among the independent variables;
green bond index, geopolitical risk, and trade policy uncertainties
 Multicollinearity occurs when one or more explanatory variables can be expressed as a linear
combination of other explanatory variables. To identify the presence of multicollinearity, we
utilized a technique called high pairwise correlation.
 Upon examining Table 4.2, it was found that the correlation coefficients between trade policy
uncertainties (TPU) and geopolitical risk (GPR) as well as between TPU and the green bond index
(GBI) were approximately -0.11 and -0.03, respectively, indicating relatively weak correlations.
 Similarly, the correlation coefficient between geopolitical risk and the green bond index was
approximately -0.10, also suggesting a weak correlation. Thus, the analysis concludes that there
is a low degree of collinearity among the independent variables.

Unit root test

 Before conducting the panel ARDL analysis, we verified the level of integration, considering it as
a prerequisite. To achieve this, we performed unit root tests such as Levin Lin Chu, Im Pesaran-
Shin, Augmented Dickey-Fuller (ADF), and Phillips-Peron (PP) tests.
 The results obtained from the PP test indicate that all variables exhibit stationarity at their initial
level.
 Although the Phillips-Peron (PP) tests yielded conflicting results, we cannot solely rely on them.
However, the other three tests indicated that all variables are stationary at first difference (I(1)).
Consequently, we concluded that the variables are integrated of order one (I(1)).)

Optimal Lag Selection

  To determine the appropriate lag order for our analysis, we employed the VAR model. The
results from the VAR model indicated that the model performs better with a lag order of 4

.Cointegration test

 The cointegration test is conducted for variables that have been determined to be
integrated of a certain order, specifically, I(1), through the unit root test.
 If I(1) variables are cointegrated, it indicates the existence of a long-run relationship
between the variables.
 The initial Kao test results showed that we could not reject the null hypothesis of no
cointegration at a 10% significance level, indicating that the variables are not cointegrated
based on this test.
 To further assess cointegration and seek a consensus, we conducted the Pedroni
cointegration test, as it complements the traditional unit root test (Kao test). Surprisingly, 9
out of the 11 tests from the Pedroni test indicated cointegration among the variables.
 Relying on the outcome of the Pedroni test, we concluded that our variables are
cointegrated, even though the Kao test initially did not suggest cointegration..

Panel ARDL results

 We utilized the PMG approach, a panel ARDL technique, due to its reliance on cointegration. The
PMG approach allowed us to estimate the long-term relationship among the cointegrated
variables and provided an error correction coefficient, supporting the existence of this long-term
association.
 Our findings indicated that there is a high speed of adjustment from the short run to the long
run if there is any disequilibrium in the system. This is evident from the 57% rate of convergence
of the ECT coefficient.
 The AIC model selection selection criteria chose model 6, that is ARDL(2,2,2,2) as the suitable
model for our findings as indicated in Figure 4.

In the long-term analysis;

 Volatility of green bond returns are negatively correlated with trade policy uncertainty (TPU),
causing a 0.0444% decrease in volatility for every 1 percent increase in TPU.
 Geopolitical risk (GPR) demonstrates a significant positive long-term relationship with green
bond return volatility, with a 1 percent increase in GPR leading to a 0.7153% increase in
volatility.
 Additionally, the green bond index (GBI) exhibits a positive long-term relationship with green
bond return volatility, showing that a 1 percent increase in GBI results in a 0.7219% increase in
volatility.

In the short-term analysis;

 The volatility of green bond returns is positively associated with trade policy uncertainties (TPU),
indicating that a 1 percent increase in TPU results in an immediate 0.0133% increase in green
bond return volatility.
  Geopolitical risk and green bond index both show immediate negative relationships with green
bond return volatility. A 1 percent rise in geopolitical risk corresponds to a 0.1768% decrease,
while a 1 percent increase in the green bond index results in a 2.5623% decrease in volatility.

PMG individual countries results

 The study reveals different speeds of adjustment among the three countries. Japan exhibits the
highest speed at approximately 65.96%, followed by the USA at 54.98%, and China at around
49.97%.
 Both the USA and Japan display a positive and statistically significant short-run relationship
between Trade Policy Uncertainties (TPU) and the volatility of green bond returns.
 In contrast, China shows a negative and statistically significant effect of Trade Policy
Uncertainties (TPU) on the volatility of green bond returns.
 GPR has a negative and statistically significant impact on the volatility of green bond returns in
all countries.
 The study also finds that Geopolitical Risk (GPR) has a negative and statistically significant
influence on the volatility of green bond returns across all countries, especially in the short term.
Moreover, there is a similar negative and statistically significant relationship between the Green
Bond Index (GBI) and green bond return volatility in all three countries.