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Is There a Green Bond Premium? The Yield Differential Between Green and Conventional Bonds

Published in the Journal of Banking and Finance, Vol. 98 (p. 39-60), 2019, as "The effect of pro-environmental preferences on bond prices: Evidence from green bonds".

67 Pages Posted: 27 Dec 2016 Last revised: 28 May 2021

See all articles by Olivier David Zerbib

Olivier David Zerbib

Boston University

Date Written: December 25, 2016

Abstract

In this paper, we examine the yield premium of green bonds. We use a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and an otherwise identical synthetic conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample as well as for EUR and USD bonds separately. We show that the main determinants of the premium are the rating and the issuer type: the negative premia are more pronounced for financial and low-rated bonds.

Keywords: Green bonds, Low-carbon finance, Environmental finance, Asset management, Market microstructure, Liquidity, Green macroprudential regulation

JEL Classification: C23, G12, G14, G20, Q56

Suggested Citation

Zerbib, Olivier David, Is There a Green Bond Premium? The Yield Differential Between Green and Conventional Bonds (December 25, 2016). Published in the Journal of Banking and Finance, Vol. 98 (p. 39-60), 2019, as "The effect of pro-environmental preferences on bond prices: Evidence from green bonds"., Available at SSRN: https://ssrn.com/abstract=2889690 or http://dx.doi.org/10.2139/ssrn.2889690

Olivier David Zerbib (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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