Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Main comments:

- there is an extensive literature review part in section 2, and most of the cited studies are similar with the current one. Their main topic is the analysis of spillovers between green and conventional assets (various instruments, samples etc). It makes the paper look rather "not very novel" because they are all quite similar in scope. However, what I find missing here but very important is that some alternative mechanisms and transmission channels are completly ignored. They deserve being mentioned, not only to hint at the limits of the present analysis, but also to guard against potential critiques. Some attempt is made in last paragraph section 2, but is very incomplete. Common factors that might influence both green and conventional assets are not mentioned at all, although the well-known ommitted variable bias is present in most empirical models, no matter the type, or estimation method. One common factor draws on policy uncertainty about regulation within and outside financial markets, because policies can affect investment strategies in both green and conventional assets (and hence influence spillovers). Govt policies about green investing, about new tech patents, licencing and all related aspects do influence the future relative profitability of green projects so they must be a factor to consider by investors looking ahead. There are many examples here; when the central bank applies lower risk weights to loans given to green projects, this affects bank loan supply, loan costs and green projects' profitability; when the govt adopts subsidies to wind/solar power projects, this also affects their future profitability. See the discussion in Dragomirescu-Gaina et al (2021, Energy Policy).  

- related to my comment above about the common factors, why is oil (or natural gas or other dirty commodities and assets) completly ignored? Anyone investing in green assets may do so by divesting from oil/conventional energy assets - so the substitution effect must be quite strong. Even when someone's only investing new cash in green assets (without having to sell old energy stocks), there is a missing opportunity for old energy/oil stocks so their returns must be lower relative to green returns. I would do some robustness check by including oil/dirty assets, as exogenous at least, and see if the main results hold. I fear that adding a common factor like oil might reduce the magnitude of the estimated spillovers, but maybe I'm wrong.         

- in terms of policy implications, I see "hedging" as the main missing dimension of the discussion. How is hedging affected by spillovers? How can investors defed/protect themselves adverse shock? I think that at least some qualitative (if not also quantitative) aspects can be mentioned, by drawing on the empirical results of the analysis. 

Comments on the Quality of English Language

English is fine, although some typos and repetitions can make reading quite annoying.

e.g. ... Documented are high levels of integration and spillovers between green and conventional stocks (Lundgren et al., 2018), clean energy and stock prices (Nguyen et al., 2021), clean energy and stock prices (Nguyen et al., 2021), green and corporate bond markets ....

Author Response

Dear reviewer,

We appreciate the possibility of reviewing our manuscript as well as your suggestions, which allowed a substantial improvement in our paper. We attach responses to comments.

Thanks.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

The article is structured. Research design is appropriate. Methods and results are clearly presented. Authors combined results and discussion section, but it looks fine to me.

As a suggestion, I would like to propose and add some useful information to abstract part.

It's also possible to clear the goal of research, scientific novelty and future prospectives in introduction section.

Author Response

Dear reviewer,

We appreciate the possibility of reviewing our manuscript as well as your suggestions, which allowed a substantial improvement in our paper. We attach responses to comments.

Thanks.

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

This paper examines the impact of green stock indices on global market dynamics amid climate uncertainties. Using a TVP-VAR model, we find a shift from shock-transmitting to shock-receiving global markets, signaling the increasing influence of green assets. The S&P Eco Index is identified as a significant shock transmitter, while the roles of the S&P Clean Energy and Water Indices differ due to sector-specific factors, highlighting implications for investment strategies, financial product development, and policy formulation in green finance.

This is a very fine, well executed, and well written piece of research. IF the goal of "Economies" is to publish new findings quickly, this article should be published without further ado. I believe it also has considerable citation potential. I have only a few comments for the authors.

Specific Comments

1. The abstract could be a bit longer and more precise. For example, the authors write that "the role of the S&P Clean Energy and Water Indices varies due to sector-specific factors". But what factors? The last sentence is also relatively vague.

2. The introduction is well written and structured. However, I recommend two changes. First, after the summary of the results, the author could indicate how it contributes to the literature by citing several key and closely related articles. It would be good to emphasize how it fills the research gaps. Finally, the outline of the structure of the reminder of the paper, starting with "The remainder of the paper is...", could be moved to a separate paragraph.

3. I think most of the asterisks in Table 1 are redundant and clutter the picture. What is the point of texting the significance for variance in the descriptive statistics? On the other hand, the authors might consider reporting a correlation table as well as plotting the values of the indices on the graph.

4. I am missing certain information about the indices under consideration. For example, are they all denominated in US dollars? Also, are they total return or price indices?

5. The literature review section is nice and comprehensive. However, I feel that some important papers are missing and that to improve the positioning, the authors could consider linking their paper to the general spillover literature, also in non-US (international, emerging) markets: Duan et al. (2023), Qian et al. (2023), Zhang and Umair (2023), Yaya et al. (2024).

6. The conclusion section could also discuss the limitations of the study.

References

Duan, X., Xiao, Y., Ren, X., Taghizadeh-Hesary, F., & Duan, K. (2023). Dynamic spillover between traditional energy markets and emerging green markets: Implications for sustainable development. Resources Policy, 82, 103483.

Qian, L., Jiang, Y., & Long, H. (2023). What drives the dependence between the Chinese and global stock markets? Modern Finance, 1(1), 12–16. 

Yaya, O., Adenikinju, O., & Olayinka, H. A. (2024). African stock markets’ connectedness: Quantile VAR approach. Modern Finance, 2(1), 51–68.

Zhang, Y., & Umair, M. (2023). Examining the interconnectedness of green finance: an analysis of dynamic spillover effects among green bonds, renewable energy, and carbon markets. Environmental Science and Pollution Research, 1-17.

Author Response

Dear reviewer,

We appreciate the possibility of reviewing our manuscript as well as your suggestions, which allowed a substantial improvement in our paper. We attach responses to comments.

Thanks.

Author Response File: Author Response.pdf