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Liquidity Risk and Yield Spreads of Green Bonds

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  • Febi Wulandari
  • Dorothea Schäfer
  • Andreas Stephan
  • Chen Sun

Abstract

This study analyses how liquidity risk affects bonds’ yield spreads after controlling for credit risk, bond-specific characteristics and macroeconomic variables. Using two liquidity estimates, LOT liquidity and the bid-ask spread, we find that, in particular, the LOT liquidity measure has explanatory power for the yield spread of green bonds. Overall, however, the impact of LOT decreases over time, implying that, nowadays liquidity risk is negligible for green bonds.

Suggested Citation

  • Febi Wulandari & Dorothea Schäfer & Andreas Stephan & Chen Sun, 2018. "Liquidity Risk and Yield Spreads of Green Bonds," Discussion Papers of DIW Berlin 1728, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1728
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    Cited by:

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    2. Maria Jua Bachelet & Leonardo Becchetti & Stefano Manfredonia, 2019. "The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification," Sustainability, MDPI, Open Access Journal, vol. 11(4), pages 1-22, February.
    3. Piñeiro-Chousa, Juan & López-Cabarcos, M.Ángeles & Caby, Jérôme & Šević, Aleksandar, 2021. "The influence of investor sentiment on the green bond market," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    4. Suborna Barua & Micol Chiesa, 2019. "Sustainable financing practices through green bonds: What affects the funding size?," Business Strategy and the Environment, Wiley Blackwell, vol. 28(6), pages 1131-1147, September.
    5. Martin Lebelle & Souad Lajili Jarjir & Syrine Sassi, 2020. "Corporate Green Bond Issuances: An International Evidence," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(2), pages 1-21, February.
    6. Pierre BUI QUANG & Jean-Brieux DELBOS & Simon PERILLAUD & Clément BOURGEY, 2019. "The green bond market is expanding rapidly but needs to be measured more accurately [En plein essor, le marché des obligations vertes nécessite d’être mieux mesuré]," Bulletin de la Banque de France, Banque de France, issue 226.

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    More about this item

    Keywords

    Green Bond; Liquidity Risk; Yield Spread; Sustainable Investment; Fixed Income Security; Financial Innovation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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