A Study on Exploring the Cointegration between Green Cryptocurrencies and G7 Sustainable Indices: An Empirical Investigation.

Abstract

This study investigates the cointegration and dynamic interactions between selected green cryptocurrencies and G7 sustainable indices over the period 2019 to 2023, aiming to provide empirical insights into the integration of emerging digital assets within the sustainable finance ecosystem. Green cryptocurrencies, including Cardano (ADA), Algorand (ALGO), and Stellar (XLM), have gained prominence due to their energy-efficient consensus mechanisms and alignment with environmental, social, and governance (ESG) principles. Simultaneously, G7 sustainable indices such as FTSE4Good UK and MSCI ESG Japan represent established benchmarks reflecting the performance of companies committed to sustainability practices in developed economies. This paper applies rigorous econometric techniques, including stationarity tests, Johansen cointegration, Vector Error Correction Model (VECM), and Granger causality analysis to assess the existence and nature of long-term equilibrium relationships and causal linkages between these asset classes. Results from the Augmented Dickey-Fuller test indicate all variables are integrated of order one, justifying the use of cointegration analysis. Johansen’s test confirms at least two cointegrating vectors, signifying that green cryptocurrencies and sustainable indices move together over the long run despite short-term market fluctuations. VECM results reveal significant error correction terms, particularly for Cardano, indicating a rapid adjustment to equilibrium after deviations. Granger causality tests demonstrate a unidirectional influence running from G7 sustainable indices to green cryptocurrencies, suggesting that traditional sustainable markets continue to guide price dynamics in the emerging green cryptocurrency sector. These findings underline the growing interdependence between digital green assets and established sustainable financial markets, offering valuable implications for investors, portfolio managers, and policymakers seeking to integrate sustainability into their investment strategies. The study contributes to the nascent literature on the convergence of green finance and digital innovation, highlighting the importance of monitoring sustainable indices to anticipate trends in green cryptocurrencies and supporting the development of regulatory frameworks that promote transparency and sustainability in the cryptocurrency space.