This paper investigates the dynamic connectedness between US sectoral equity markets and key green financial segments – namely green bonds, clean energy and ESG equities. It aims to assess how investor sentiment shapes intermarket linkages and systemic risk transmission during periods of economic and geopolitical stress.
The study employs the generalized R2 connectedness framework and the quantile-on-quantile regression approach to capture asymmetric and nonlinear interactions across markets. The analysis covers the period from February 2015 to November 2024, encompassing major global events such as the USA–China trade war, the COVID-19 pandemic and the Russia–Ukraine conflict.
Results indicate strong systemic interdependence among US sectors and green financial assets, with contemporaneous connectedness dominating lagged spillovers, suggesting rapid shock transmission. Clear sectoral asymmetries emerge: Materials, Industrials and the S&P ESG index act as major shock transmitters, whereas Healthcare, Utilities, Communication Services, green bonds and clean energy serve as net volatility absorbers. Furthermore, investor sentiment exerts nonlinear effects – neutral and bullish moods amplify connectedness, while bearish sentiment dampens it.
These findings reinforce financial contagion and risk aversion theories, highlighting sustainable finance's evolving role in systemic stability. They provide valuable guidance for portfolio diversification, risk management and policy design aimed at fostering financial resilience during the ecological and energy transition.
This study is the first to jointly apply the generalized R2 connectedness and quantile-on-quantile frameworks to explore sentiment-driven linkages between US sectors and green financial assets. By integrating sustainability dynamics with behavioral factors, it offers a novel perspective on how ecological finance interacts with traditional markets under varying sentiment and crisis conditions.
