Market integration across green, energy and carbon markets in emerging economies

Abstract

The connection between green investments, carbon markets, and traditional energy markets in emerging economies is still not well understood. Yet understanding how risk moves between these markets is important for helping investors manage volatility more effectively. Thus, this study examines how volatility is transmitted among green bond markets, energy sector indices, and carbon price indices in the MSCI Emerging Markets (MSCI EM). Using the Time-Varying Parameter Vector Autoregression (TVP-VAR) model, it captures the strength and direction of risk transmission across these sectors. The analysis is based on daily data covering green finance indices, carbon markets, energy indices, and oil prices. The findings show that the relationships between green finance, carbon pricing, and traditional energy markets are non-static, as they change over time. These evolving connections have important implications for investors and policymakers, particularly in terms of building diversified portfolios, managing risk, and shaping sustainable financial systems in emerging economies