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How Financial Leverage Influences the Formation and Stability of Asset Bubbles through Green Financial Instruments - A Moderating Effect of RMB Exchange Rate Volatility

Author(s)

Ruibing Zhou

Affiliation(s)

International College, Xiamen University, Xiamen, Fujian, China

Abstract

Against the backdrop of a global green transition, the rapid expansion of the green finance market has led to noticeable volatility and overvaluation in the stock prices of certain green enterprises. High-leverage expansion increases these firms’ exposure to price volatility, making it critical to identify and forecast asset bubble risks. This study selects five representative listed companies from the CSI Green Electricity 50 Index, using annual data from 2018 to 2024. Key variables include the debt-to-asset ratio, stock price volatility, and RMB exchange rate fluctuations. The empirical analysis explores the relationship between financial leverage and stock price volatility and assesses the moderating role of exchange rate fluctuations. Results indicate a positive correlation between leverage and stock price volatility, with the amplifying effect more pronounced in years of high exchange rate volatility. Exchange rate fluctuations intensify firms' exposure to stock price risk by affecting financing costs, cash flow pressures, and market expectations. The findings offer policy implications for risk management and regulation in the green finance sector.

Keywords

Green Finance; Stock Price Volatility; Financial Leverage; RMB Exchange Rate Fluctuations; Bubble Early Warning Mechanism

References

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