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Are green bonds priced lower than their conventional peers?

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  • Wu, Yue

Abstract

The green bond market's rapid growth has alerted issuers and investors to this sustainable area of investment. This study ascertains whether green bonds are priced lower than conventional bonds—whether a negative green bond premium exists in both Chinese and global bond markets—and the driving forces behind any such green bond premium. First, an event study is set up to observe stock market's reaction upon issuance of green bonds to test whether green bonds are embedded with additional value by improving the issuer's equity market performance. Then, using the matching method and a two-layer regression process, the study estimates the green bond premium in the Chinese and global markets, respectively, and analyses factors affecting the green bond premium. The event study reveals that green bond issuance could reduce the issuer's equity return performance. The regression models found no significant negative green bond premium in either Chinese or global markets, indicating that green bonds are not priced significantly lower than conventional bonds. However, global market models show that issuing green bonds in CNY could reduce the green bond premium, unlike in USD or EUR.

Suggested Citation

  • Wu, Yue, 2022. "Are green bonds priced lower than their conventional peers?," Emerging Markets Review, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ememar:v:52:y:2022:i:c:s1566014122000267
    DOI: 10.1016/j.ememar.2022.100909
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    Cited by:

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    2. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Doğan, Buhari & Ghosh, Sudeshna, 2023. "Sustainable debt and gas markets: A new look using the time-varying wavelet-windowed cross-correlation approach," Energy Economics, Elsevier, vol. 120(C).
    3. Yoshihiro Zenno & Kentaka Aruga, 2023. "Investigating Factors Affecting Institutional Investors’ Green Bond Investments: Cases for Beijing and Shenzhen," Sustainability, MDPI, vol. 15(6), pages 1-16, March.

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