Volatility transmission from critical minerals prices to green investments

Abstract

Green investments offer a promising market-based approach to combating global climate change, yet they are susceptible to risk transmission from various assets. While existing literature has primarily focused on the volatility implications among green investments, traditional stock returns, energy, and precious metals markets, it has overlooked the potential for volatility transmission from critical minerals markets to green investments. This is because the clean production process involves both eco-friendly stock and mineral markets, so fluctua tions in mineral prices can result in volatility spillover to green investments. In this study, we examine the volatility transmission from critical mineral prices (such as copper, nickel, and lead) to green bonds and green equities in a global context. Using cross-quantilogram and cross-quantile spectrum analysis, we analyse daily data from October 31, 2014, to October 5, 2022, taking into account short-, medium-, and long-term investment horizons. Our findings indicate strong short- and long-term connections between green financial and mineral markets during market booms and busts. Conversely, under normal market conditions, both markets tend to behave independently. Our results provide valuable insights for green project managers, investors, and policy makers, highlighting the efficiency of green investments in achieving environmental goals.