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This paper examines the dynamic linkages among economic policy uncertainty (EPU), the green bond market, the carbon market, and the macroeconomy using the time-varying parameter vector autoregressive (TVP-VAR) model with monthly data spanning from January 2016 to December 2021. Additionally, it assesses the robustness and accuracy of the empirical results through the Bayesian vector autoregressive (BVAR) model. The findings indicate that EPU negatively affects the green bond market in the short term but has a positive impact in the medium and long term. Conversely, EPU has a positive impact on the carbon market in the short term but a negative impact in the medium and long term. Furthermore, the green bond market negatively influences the carbon market in both the short and medium to long term. These results suggest that emerging markets, such as the green bond and carbon markets, are influenced by EPU. The adverse impact of the green bond market on the carbon market, however, contributes to expediting China's attainment of its low-carbon objectives. Appropriate economic policies can play a vital role in accelerating the transition to a low-carbon economy. The study also reveals that the US-China trade war has expedited the development of green capital markets in China, despite its impact on the green economic transition in the country. These findings provide insights for the government and investors to formulate suitable strategies for risk mitigation. [ABSTRACT FROM AUTHOR]

Investing in green bonds has been recognized as a strategy that not only promotes environmental performance but also offers attractive investment returns. However, macroeconomic factors, such as geopolitical risk (GPR), climate policy uncertainty (CPU), and global economic policy uncertainty (GEPU), play a substantial role in shaping green bond returns. Using the returns of US green bonds as a proxy for the returns of green bonds, we argue in this paper that these heterogenous uncertainty measures might have asymmetric impacts on the returns of green bonds (GB). By employing monthly data from January 2016 to August 2022, we apply the nonlinear autoregressive distributed lags model (NARDL) to examine the asymmetric impact of these heterogenous uncertainty measures on the returns of GB. The NARDL findings reveal evidence of short-run asymmetric impacts of GPR, GEPU, and CPU on the returns of green bonds. In the long run, there is an asymmetric impact of GPR and CPU on the returns of GB. However, there is a symmetric impact of CPU on the returns of GB in the long run. Specifically, in the short run, we found that a positive CPU shock causes a decline in the returns of green bonds. A similar magnitude of negative CPU shock causes an increase in the returns of green bonds. Moreover, a positive shock to GPR increases the return of green bonds, while a comparable negative shock to GPR reduces the return of GB. Furthermore, only negative shocks to GEPU have an impact on GB returns in the short run. Specifically, a negative GEPU shock reduces GB returns. In the long term, the returns of GB are positively impacted by negative shocks in GPR and both positive and negative shocks in GEPU, whereas positive shocks in GPR affect the returns of GB negatively. [ABSTRACT FROM AUTHOR]