Asymmetric Multifractal Detrended Cross-Correlation Patterns in the Dynamics of the Green Investment Funds and Financial Markets: Insights from Geopolitical Risk

Abstract

This paper explores asymmetric multifractal detrended cross-correlation patterns (AMFDCCA) of green investment funds, financial markets, and geopolitical risk (GPR). Based on daily data of a portfolio of various green and traditional financial products, the paper will seek to address the nonlinear, scale-sensitive and asymmetric relationships existing between these markets under different geopolitical circumstances. The AMFDCCA model is used to reveal multifractal cross-correlations and long-range dependencies which cannot be identified using the standard linear methodologies. The empirical results demonstrate that there exists a high level of multifractality and long-memory behavior of all of the asset pairs, which signifies the existence of a strong nonlinear cross-correlation of the green investment funds, financial markets, and geopolitical risk. The findings also show that these relationships are asymmetric at various levels of fluctuations, whereby there is persistence on large fluctuations than on small fluctuations. Notably, green investment products, especially clean energy-related and sustainable indices indicate greater sensitivity to geopolitical risk than traditional financial products, indicating their susceptibility to world uncertainty and market stress.