Investigating Short-Term Dynamics in Green Bond Markets

TL;DR

This paper analyzes the short-term dynamics of green bond markets using Hawkes processes, revealing how trading activity and interest rate announcements influence bond price jumps, especially in energy sector issuers.

Contribution

It introduces a bivariate Hawkes process model to capture cross-effects of price movements and applies it to high-frequency bond data, highlighting the impact of interest rate events.

Findings

Green bonds exhibit distinct jump dynamics during interest rate announcements.

Energy sector issuers show more pronounced effects in bond price jumps.

The bivariate model captures interactions between upward and downward price movements.

Abstract

The paper investigates the effect of the label green in bond markets from the lens of the trading activity. The idea is that jumps in the dynamics of returns have a specific memory nature that can be well represented through a self-exciting process. Specifically, using Hawkes processes where the intensity is described through a continuous time moving average model, we study the high-frequency dynamics of bond prices. We also introduce a bivariate extension of the model that deals with the cross-effect of upward and downward price movements. Empirical results suggest that differences emerge if we consider periods with relevant interest rate announcements, especially in the case of an issuer operating in the energy market.