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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: 15 Feb 2019

See all articles by Olivier David Zerbib

Olivier David Zerbib

Tilburg School of Economics and Management; University of Lyon 1 - Institute of Finance and Insurance Science (ISFA); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

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)

Tilburg School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

University of Lyon 1 - Institute of Finance and Insurance Science (ISFA) ( email )

50, Avenue Tony Garnier
Lyon Cedex 07, 69366
France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

5 Avenue Le Chatelier
Palaiseau, 91120
France

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