Is There a Green Bond Premium? The Yield Differential Between Green and Conventional Bonds
67 Pages Posted: 27 Dec 2016 Last revised: 15 Feb 2019
Date Written: December 25, 2016
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
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