Enabler or barrier? Evaluating the effectiveness of green financial assets in hedging against uncertainties

Identifying the hedging effectiveness of green financial assets against uncertainties and risks is crucial to constructing resilient investment portfolios. This study employs the jIRF and jQIRF to examine the hedging performance of green bonds and stocks against multiple uncertainties in China. The jIRF-based results show that various uncertainties jointly enhance green bond return (GBR), supporting their hedging role, while exerting negative effects on green stock return (GSR), indicating limited hedging capacity. The jQIRF-based impulse responses reveal that green bonds maintain hedging ability against multiple uncertainties across most quantiles except under extremely high returns, whereas green stocks serve as hedges only during relatively low return regimes. These findings for green bonds are largely consistent with the ICAPM, while those for green stocks deviate from its hypothesis. The consistency between summed gIRF (gQIRF) and jIRF (jQIRF) results, along with the alignment across mean and quantile regressions, reinforces the robustness of our findings. In conclusion, green bonds offer more stable hedging benefits under multiple uncertainties, whereas green stocks demonstrate limited effectiveness, especially during periods of relatively high returns. Against a backdrop of intensifying uncertainties, these findings offer practical insights for policymakers and market participants.