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Green Bond Investment, Redemption Risk, and Fund Performance: Evidence From Chinese Bond Mutual Funds

Author

Listed:
  • Chengyu Li
  • Dayong Lv
  • Qingsong Ruan
  • Xiaokun Wei

Abstract

This paper examines the influence of green bond investments on bond fund performance in China from June 2016 to June 2023. We find that funds investing in green bonds (“green funds”) significantly outperform their non‐green counterparts. This outperformance can be attributed to a “redemption risk story,” where green bond investments mitigate redemption pressures, enabling fund managers to reduce liquidity buffers and reallocate capital to higher‐yielding assets. Consistent with this story, the outperformance of green funds is more pronounced during periods of heightened redemption risk. Our research contributes to understanding the benefits of socially responsible investments in bond mutual funds.

Suggested Citation

  • Chengyu Li & Dayong Lv & Qingsong Ruan & Xiaokun Wei, 2025. "Green Bond Investment, Redemption Risk, and Fund Performance: Evidence From Chinese Bond Mutual Funds," International Review of Finance, International Review of Finance Ltd., vol. 25(4), December.
    • Handle: RePEc:bla:irvfin:v:25:y:2025:i:4:n:e70054
    DOI: 10.1111/irfi.70054
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