The heterogeneous reaction of green and conventional bonds to exogenous shocks and the hedging implications.

Unlike most previous studies considering the yields on green bonds versus conventional bonds or the hedging ability of green bonds against downside market risk, the main purpose of this paper is to paper examine the short-term response of green and conventional bonds to the Russia-Ukraine conflict shock and the US Federal monetary policy tightening. Using daily data from August 3, 2021 to March 29, 2022, this paper conducts an event-based study (Cumulative Abnormal Returns, CAR) and then applies a hedging analysis in the context of increasing geopolitical risk and financial stress. The analysis reveals that green bonds exhibit a stronger reaction to the Russia-Ukraine conflict and the US Federal rate hike than conventional, municipal, and treasury bonds in different time frames.