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Climate change risk and green bond pricing

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  • Del Giudice, Alfonso
  • Rigamonti, Silvia
  • Signori, Andrea

Abstract

We investigate whether climate change risk is accurately priced in the bond market. Green bonds outperform brown bonds after a climate-related disaster, consistent with investors adjusting their preference towards green assets. We then examine whether the post-disaster reaction is rational or affected by a behavioral bias. Our findings reveal two key patterns supporting the behavioral explanation: first, the impact of disasters on green bond prices is temporary as it fully reabsorbs by the fifth month after the event; second, the effect weakens as disasters become more repetitive. Overall, the evidence indicates that investors overreact in the immediate aftermath of a disaster and this overreaction fades as the event becomes less salient.

Suggested Citation

  • Del Giudice, Alfonso & Rigamonti, Silvia & Signori, Andrea, 2025. "Climate change risk and green bond pricing," Journal of Empirical Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:empfin:v:82:y:2025:i:c:s0927539825000386
    DOI: 10.1016/j.jempfin.2025.101616
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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