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Brown bonds in a green world: Are investors punishing high-carbon issuers with illiquidity?

Author

Listed:
  • Schoeffel, Alexander
  • Kiesel, Florian
  • Geissdoerfer, Martin
  • Mueller, Lukas
  • Schiereck, Dirk

Abstract

We investigate whether corporate bond liquidity is negatively impacted by issuers' carbon intensity, particularly given the rising share of sustainably investing bond funds. Using several established illiquidity measures, we analyze the long-term impact of carbon performance on bond illiquidity. We do not find conclusive evidence that carbon intensity leads to bond illiquidity; however, we find evidence that bonds from high-carbon issuers exhibited heightened illiquidity around the Paris Agreement. A higher share of funds holding low-carbon portfolios does not seem to be associated with improved liquidity in low-carbon bonds. Despite the growing market share of sustainability-oriented funds, continued investment in brown bonds suggests that carbon-intensive sectors remain economically attractive to investors.

Suggested Citation

  • Schoeffel, Alexander & Kiesel, Florian & Geissdoerfer, Martin & Mueller, Lukas & Schiereck, Dirk, 2026. "Brown bonds in a green world: Are investors punishing high-carbon issuers with illiquidity?," Journal of Empirical Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:empfin:v:87:y:2026:i:c:s092753982600006x
    DOI: 10.1016/j.jempfin.2026.101691
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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