This study aims to examine multifractality and test whether green markets and traditional capital markets react similarly to the phenomenon of persistence during extreme events in international financial markets. The green indices analyzed are from the USA, namely S&P Green Bond, Wilderhill Clean Energy, and the capital markets of the United Kingdom (FTSE 100), Europe (EURO STOXX 50), the USA (DOW JONES), Japan (NIKKEI 225), China (SHANGHAI SE A), India (NIFTY 500), Israel (TA 125), and Russia (MOEX) from January 1, 2018 to November 23, 2023. The results show no significant differences between green markets and traditional capital markets in terms of persistence, either in periods of stress or tranquility in the international financial markets; therefore, the research question is rejected because there are no distinct behavior patterns. The findings provide crucial insights for investors, policymakers, and other participants in the green and traditional financial markets.
Top1. Introduction
The definition of market efficiency was first envisioned in a book written by Gibson (1889), entitled The Stock Markets of London, Paris, and New York, in which the author wrote that when “stocks become publicly known in an open market, the value they acquire may be regarded as an appreciation of the best intelligence about them.”
Later, in 1900, a French mathematician named Louis Bachelier published his doctoral thesis, Théorie de la Spéculation (Theory of Speculation). According to Bachelier (1900), past, present, and even future events are reflected in the market price but often show no apparent relationship to price changes. Consequently, the market does not predict fluctuations in asset prices. Furthermore, he deduced that “The mathematical expectation of the speculator is zero,” a statement that is in line with Samuelson (1965), who explained efficient markets in terms of a martingale (fair game). The empirical implication is that asset prices fluctuate randomly, making their movements unpredictable. Bachelier's (1900) contribution to the origin of market efficiency was discovered when his work was published in English by King and Cootner (1965) and discussed by Fama (1965b, 1965a, 1970).
Market efficiency describes a market in which relevant information is quickly incorporated into asset prices so that investors cannot expect superior returns from their trading strategies. Different studies have analyzed the issue of market efficiency by examining the hypothesis of predictability of returns through the analysis of mean reversion in financial market prices (Fama and French, 1988). When the random walk and informational efficiency hypotheses are rejected, extreme movements in stock prices occur. These phenomena could possibly reduce the implementation of efficient portfolio diversification strategies (Sadat and Hasan, 2019).
This chapter will analyze whether green capital markets and traditional capital markets react similarly to the phenomenon of persistence during extreme events in international financial markets.
This research adds to the literature by studying whether green markets and traditional capital markets react equally to the phenomenon of persistence during extreme events in international financial markets from January 1, 2018, to November 23, 2023. In order to make the research more robust, the sample was divided into four sub-periods: The Tranquil period incorporates the years from January 2018 to December 31, 2019; the COVID-19 pandemic sub-period starts on January 1, 2020, to December 31, 2020; the Pre-Conflict period comprises the years from January 1, 2021 to February 23, 2022; finally the period incorporating the Russian invasion of Ukraine in 2022 comprises the time lapse from February 23, 2022 to November 23, 2023.
Based on the literature reviewed, it was found that the authors Soltani and Abbes (2023) and Enow (2023) evaluated the predictive power of international financial markets during the 2020 pandemic. In a complementary way, Adekoya et al. (2023) tested whether persistence was more pronounced in oil prices in European and non-European stock markets before and during the recent Russia-Ukraine war. Meanwhile, Dias et al. (2023) examined persistence in the capital markets of Austria (ATX), Poland (WIG), the Czech Republic (PX Prague), Hungary (BUX), Croatia (CROBEX), Serbia (BELEX 15), Romania (BET) and Slovenia (SBI TOP), during the events of 2020 and 2022. As far as is known, this is the first study to analyze in isolation whether there are differences in persistence between green markets and international capital markets during the pre-and global pandemic events of 2020 and the Russian invasion of Ukraine in 2022.
This chapter is organized into five sections. Section 2 presents an analysis of the Literature Review regarding studies on the efficient market hypothesis in international financial markets. Section 3 describes the methodology and data. Section 4 contains the results. Section 5 concludes.