IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v176y2026ics0304405x25002259.html

The benchmark greenium

Author

Listed:
  • D’Amico, Stefania
  • Klausmann, Johannes
  • Pancost, N. Aaron

Abstract

Exploiting the “twin” structure of German government green and conventional securities, we use a dynamic term structure model to estimate a time-varying greenium stemming solely from investors’ green values and not their cash flow expectations. This greenium is distinct from the yield spread between the twin securities (the green spread), as the model purifies it from pecuniary and non-pecuniary factors unrelated to environmental concerns. While the green spread correlates with stock market prices, the conventional convenience yield, and temporary demand-supply imbalances, our greenium correlates only with proxies of environmental concerns. We also estimate expected green returns, which incorporate greenium risk.

Suggested Citation

  • D’Amico, Stefania & Klausmann, Johannes & Pancost, N. Aaron, 2026. "The benchmark greenium," Journal of Financial Economics, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jfinec:v:176:y:2026:i:c:s0304405x25002259
    DOI: 10.1016/j.jfineco.2025.104217
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X25002259
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2025.104217?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    2. Sisira Colombage & K.G.M. Nanayakkara, 2020. "Impact of credit quality on credit spread of Green Bonds: A global evidence," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 10(1), pages 31-42.
    3. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    4. Malcolm Baker & Daniel Bergstresser & George Serafeim & Jeffrey Wurgler, 2018. "Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds," NBER Working Papers 25194, National Bureau of Economic Research, Inc.
    5. Jens H. E. Christensen & Glenn D. Rudebusch, 2012. "The Response of Interest Rates to US and UK Quantitative Easing," Economic Journal, Royal Economic Society, vol. 122(564), pages 385-414, November.
    6. D’Amico, Stefania & Kim, Don H. & Wei, Min, 2018. "Tips from TIPS: The Informational Content of Treasury Inflation-Protected Security Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(1), pages 395-436, February.
    7. Xavier Gabaix, 2008. "Variable Rare Disasters: A Tractable Theory of Ten Puzzles in Macro-finance," American Economic Review, American Economic Association, vol. 98(2), pages 64-67, May.
    8. Zerbib, Olivier David, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 39-60.
    9. Stefania D’Amico & N Aaron Pancost, 2022. "Special Repo Rates and the Cross-Section of Bond Prices: The Role of the Special Collateral Risk Premium [Pr icing the term structure with linear regressions]," Review of Finance, European Finance Association, vol. 26(1), pages 117-162.
    10. John Caramichael & Andreas Rapp, 2022. "The Green Corporate Bond Issuance Premium," International Finance Discussion Papers 1346, Board of Governors of the Federal Reserve System (U.S.).
    11. Jean-Sébastien Fontaine & René Garcia, 2012. "Bond Liquidity Premia," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1207-1254.
    12. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    13. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    14. Flammer, Caroline, 2021. "Corporate green bonds," Journal of Financial Economics, Elsevier, vol. 142(2), pages 499-516.
    15. Adrian, Tobias & Crump, Richard K. & Moench, Emanuel, 2013. "Pricing the term structure with linear regressions," Journal of Financial Economics, Elsevier, vol. 110(1), pages 110-138.
    16. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, February.
    17. Denis Gromb & Dimitri Vayanos, 2010. "Limits of Arbitrage: The State of the Theory," NBER Working Papers 15821, National Bureau of Economic Research, Inc.
    18. Florian Berg & Julian F Kölbel & Roberto Rigobon, 2022. "Aggregate Confusion: The Divergence of ESG Ratings [Corporate social responsibility and firm risk: theory and empirical evidence]," Review of Finance, European Finance Association, vol. 26(6), pages 1315-1344.
    19. Stefano Giglio & Matteo Maggiori & Krishna Rao & Johannes Stroebel & Andreas Weber & Stijn Van Nieuwerburgh, 2021. "Climate Change and Long-Run Discount Rates: Evidence from Real Estate [Abrupt climate change]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3527-3571.
    20. Feldhütter, Peter & Halskov, Kristoffer & Krebbers, Arthur, 2024. "Pricing of sustainability-linked bonds," Journal of Financial Economics, Elsevier, vol. 162(C).
    21. Krishnamurthy, Arvind, 2002. "The bond/old-bond spread," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 463-506.
    22. Klingler, Sven & Sundaresan, Suresh, 2023. "Diminishing treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 55-69.
    23. N Aaron Pancost, 2021. "Zero-Coupon Yields and the Cross-Section of Bond Prices [Pricing the term structure with linear regressions]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(2), pages 209-268.
    24. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    25. Xavier Gabaix, 2007. "Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices," NBER Working Papers 13430, National Bureau of Economic Research, Inc.
    26. Du, Wenxin & Hébert, Benjamin & Li, Wenhao, 2023. "Intermediary balance sheets and the treasury yield curve," Journal of Financial Economics, Elsevier, vol. 150(3).
    27. Andreasen, Martin M. & Christensen, Jens H.E. & Rudebusch, Glenn D., 2019. "Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices," Journal of Econometrics, Elsevier, vol. 212(1), pages 26-46.
    28. Serhan Cevik & João Tovar Jalles, 2022. "An Apocalypse Foretold: Climate Shocks and Sovereign Defaults," Open Economies Review, Springer, vol. 33(1), pages 89-108, February.
    29. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    30. Andreasen, Martin M. & Christensen, Bent Jesper, 2015. "The SR approach: A new estimation procedure for non-linear and non-Gaussian dynamic term structure models," Journal of Econometrics, Elsevier, vol. 184(2), pages 420-451.
    31. Denis Gromb & Dimitri Vayanos, 2010. "Limits of Arbitrage," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 251-275, December.
    32. Olivier David Zerbib, 2022. "A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Environmental Integration and Sin Stock Exclusion [Asset pricing with liquidity risk]," Review of Finance, European Finance Association, vol. 26(6), pages 1345-1388.
    33. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    34. Tony Berrada & Leonie Engelhardt & Rajna Gibson & Philipp Krueger, 2022. "The Economics of Sustainability Linked Bonds," Swiss Finance Institute Research Paper Series 22-26, Swiss Finance Institute.
    35. Bernstein, Asaf & Gustafson, Matthew T. & Lewis, Ryan, 2019. "Disaster on the horizon: The price effect of sea level rise," Journal of Financial Economics, Elsevier, vol. 134(2), pages 253-272.
    36. Florian Heeb & Julian F Kölbel & Falko Paetzold & Stefan Zeisberger, 2023. "Do Investors Care about Impact?," The Review of Financial Studies, Society for Financial Studies, vol. 36(5), pages 1737-1787.
    37. Faccini, Renato & Matin, Rastin & Skiadopoulos, George, 2023. "Dissecting climate risks: Are they reflected in stock prices?," Journal of Banking & Finance, Elsevier, vol. 155(C).
    38. Laura T. Starks, 2023. "Presidential Address: Sustainable Finance and ESG Issues—Value versus Values," Journal of Finance, American Finance Association, vol. 78(4), pages 1837-1872, August.
    39. Feldhütter, Peter & Lando, David, 2008. "Decomposing swap spreads," Journal of Financial Economics, Elsevier, vol. 88(2), pages 375-405, May.
    40. Ravi Bansal & Dana Kiku & Marcelo Ochoa, 2016. "Price of Long-Run Temperature Shifts in Capital Markets," NBER Working Papers 22529, National Bureau of Economic Research, Inc.
    41. Huynh, Thanh D. & Xia, Ying, 2021. "Climate Change News Risk and Corporate Bond Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(6), pages 1985-2009, September.
    42. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1927-1971.
    43. Alain Monfort & Fulvio Pegoraro & Jean-Paul Renne & Guillaume Roussellet, 2021. "Affine Modeling of Credit Risk, Pricing of Credit Events, and Contagion," Management Science, INFORMS, vol. 67(6), pages 3674-3693, June.
    44. Painter, Marcus, 2020. "An inconvenient cost: The effects of climate change on municipal bonds," Journal of Financial Economics, Elsevier, vol. 135(2), pages 468-482.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    2. Tristan Jourde & Arthur Stalla-Bourdillon, 2026. "Environmental preferences and sector valuations," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 162(1), pages 45-85, February.
    3. Alam, Zinat & Hossain, Miran & Wang, Lingling, 2025. "The economic and cultural motives of green price premium," The British Accounting Review, Elsevier, vol. 57(5).
    4. Liang, Hao & Ng, Lilian & Yoon, Aaron, 2025. "Editorial: What have we learned about green and climate finance?," The British Accounting Review, Elsevier, vol. 57(5).
    5. Faccini, Renato & Matin, Rastin & Skiadopoulos, George, 2023. "Dissecting climate risks: Are they reflected in stock prices?," Journal of Banking & Finance, Elsevier, vol. 155(C).
    6. Stefania D’Amico & N Aaron Pancost, 2022. "Special Repo Rates and the Cross-Section of Bond Prices: The Role of the Special Collateral Risk Premium [Pr icing the term structure with linear regressions]," Review of Finance, European Finance Association, vol. 26(1), pages 117-162.
    7. Cartellier, Fanny & Tankov, Peter & Zerbib, Olivier David, 2025. "Can investors curb greenwashing?," Journal of Economic Dynamics and Control, Elsevier, vol. 180(C).
    8. Lee H. Seltzer & Laura Starks & Qifei Zhu, 2022. "Climate Regulatory Risk and Corporate Bonds," NBER Working Papers 29994, National Bureau of Economic Research, Inc.
    9. Roman Kräussl & Tobi Oladiran & Denitsa Stefanova, 2024. "A review on ESG investing: Investors’ expectations, beliefs and perceptions," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 476-502, April.
    10. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    11. Allahdadi, Mohammad R. & Fretheim, Torun & Vindedal, Kjetil, 2024. "Value of climate change news: A textual analysis," Global Finance Journal, Elsevier, vol. 63(C).
    12. Maxime Sauzet, 2025. "Green Intermediary Asset Pricing," CESifo Working Paper Series 11944, CESifo.
    13. Kim, Sehoon & Kumar, Nitish & Lee, Jongsub & Oh, Junho, 2025. "ESG lending," Journal of Financial Economics, Elsevier, vol. 173(C).
    14. Zhou, Mingtao & Ma, Yong, 2025. "Physical vs. Transition climate risks: Asymmetric effects on stock return predictability," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    15. Pham, Linh & Kamal, Javed Bin, 2024. "Blessings or curse: How do media climate change concerns affect commodity tail risk spillovers?," Journal of Commodity Markets, Elsevier, vol. 34(C).
    16. Wan, Wei & Lee, Chien-Chiang & Liu, Hao, 2026. "Intertemporal hedging and the carbon beta premium: Insights from Chinese corporate bonds," Energy Economics, Elsevier, vol. 153(C).
    17. Benkraiem, Ramzi & Dimic, Nebojsa & Piljak, Vanja & Swinkels, Laurens & Vulanovic, Milos, 2025. "Media-based climate risks and international corporate bond market," Journal of International Money and Finance, Elsevier, vol. 151(C).
    18. Ugolini, Andrea & Reboredo, Juan C. & Ojea-Ferreiro, Javier, 2024. "Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps," Research in International Business and Finance, Elsevier, vol. 70(PB).
    19. Chen, Yiyang & Mamon, Rogemar & Spagnolo, Fabio & Spagnolo, Nicola, 2025. "Stock market returns and climate risk in the U.S," Journal of Multinational Financial Management, Elsevier, vol. 77(C).
    20. Nguyen, Minh Nhat & Liu, Ruipeng & Li, Youwei, 2025. "Performance of energy ETFs and climate risks," Energy Economics, Elsevier, vol. 141(C).

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:176:y:2026:i:c:s0304405x25002259. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.