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Investor strategies and Liquidity Premia in the European Green Bond market

Author

Listed:
  • Mohamed Amine Boutabba

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay)

  • Yves Rannou

    (ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand, CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA [2017-2020] - Université Clermont Auvergne [2017-2020])

Abstract

This paper studies the term structure of the liquidity premium of the European green bond market along three liquidity (short-term, medium-term, and long-term) premia. If the liquidity premium is an increasing function of bond's maturity, the estimated sizes of liquidity premia are comparable to those found on the German government bond markets. We then show that liquidity premia are moderately sensitive to economic determinants. Moreover, we detect a liquidity clientele effect on the ask side, which contributes to increase all liquidity premia. This clientele effect is, however, mitigated by spillover effects operating from the short-end to the long-end of the term structure and vice versa. In sum, our results deliver valuable insights on investors' strategies in the European green bond market, notably those of long-term investors who are not only compensated for their higher illiquidity risks but also provide market stability with their buy and hold strategies.

Suggested Citation

  • Mohamed Amine Boutabba & Yves Rannou, 2020. "Investor strategies and Liquidity Premia in the European Green Bond market," Post-Print hal-02544451, HAL.
    • Handle: RePEc:hal:journl:hal-02544451
    Note: View the original document on HAL open archive server: https://uca.hal.science/hal-02544451
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    References listed on IDEAS

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    More about this item

    Keywords

    Green Bond; Liquidity Premium; Spillover effects; Bond Liquidity; Term structure; Clientele effect JEL CODES : G11; G12; G13; Q56;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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