Do oil shocks affect the green bond market?

This study examines the predictive power of oil shocks for the green bond markets. In line with this aim, we investigated the extent to which oil shocks could be used to accurately make in- and out-of-sample forecasts for green bond returns. Three striking findings emanated from our results: First, the three types of oil shock are reliable predictors for green bond indices. Second, the performances of the predictive models were consistent across the different forecasting horizons (i.e. H = 1 to H = 24). Third, our findings were sensitive to classifying the dataset into pre-COVID and COVID eras. For instance, the results confirmed that the predictive power of oil shocks declined during the crisis period. We also discuss some policy implications of this study's findings. •We examine the predictive power of oil shocks for the green bond markets.•We investigate the extent to which oil shocks could be used to accurately make in- and out-of-sample forecasts for green bond returns.•The three types of oil shock are reliable predictors for the green bond indices.•The performance of the predictive models remain consistent across different forecasting horizons.•Our results confirm that the predictive power of oil shocks decline during the COVID-19 period.