Green Haven or Risky Venture? Exploring the Connectedness and Hedging of Sustainable Cryptocurrencies and Green Financial Markets

2026-07-02

AI Summary

This study investigates the dynamic interdependence and hedging capabilities between sustainable cryptocurrencies and green financial markets during major exogenous shocks, such as the COVID-19 pandemic and the Russia–Ukraine conflict. Employing a time-varying parameter vector autoregressive (TVP-VAR) model integrated with Fourier transformation and multivariate GARCH techniques, the analysis captures the evolving linkages and volatility dynamics between these assets. The findings reveal generally weak overall connectedness, suggesting substantial diversification benefits for investors. Moreover, sustainable cryptocurrencies demonstrate superior short-term hedging effectiveness compared to conventional cryptocurrencies, offering new empirical support and strategic insights for constructing environmentally conscious investment portfolios.

Abstract

Conventional cryptocurrency often leads to increased energy consumption and carbon emissions, while sustainable cryptocurrencies possess the potential to become a green alternative in portfolio management. This study aims to investigate the time-varying connectedness between sustainable cryptocurrency and green financial markets as well as hedging performance when facing market shocks, including COVID-19 and Russia-Ukraine war. TVP-VAR model with Fourier transform and Multivariate GARCH models are employed. The findings indicate that the pairwise connectedness between the sustainable cryptocurrencies and green financial markets has been at a low level, providing diversification benefits in investment portfolio. Besides, short-term connectedness dominates medium- and long-term connectedness. Sustainable cryptocurrencies show higher hedging effectiveness than traditional cryptocurrency.

Problem

• sustainable cryptocurrency
• green financial markets
• connectedness
• hedging
• market shocks

Innovation

• sustainable cryptocurrency
• green financial markets
• time-varying connectedness
• hedging effectiveness
• TVP-VAR with Fourier transform