Liquidity Risk and Yield Spreads of Green Bonds

25 Pages Posted: 18 Apr 2018

See all articles by Febi Wulandari

Febi Wulandari

Jonkoping University - Jonkoping International Business School (JIBS)

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin); JIBS

Andreas Stephan

Jonkoping University, Jonkoping International Business School

Chen Sun

Jonkoping University - Jonkoping International Business School (JIBS)

Date Written: March 12, 2018

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.

Keywords: Green Bond, Liquidity Risk, Yield Spread, Sustainable Investment, Fixed Income Security, Financial Innovation

JEL Classification: G12, G32

Suggested Citation

Wulandari, Febi and Schaefer, Dorothea and Stephan, Andreas and Sun, Chen, Liquidity Risk and Yield Spreads of Green Bonds (March 12, 2018). DIW Berlin Discussion Paper No. 1728, Available at SSRN: https://ssrn.com/abstract=3161323 or http://dx.doi.org/10.2139/ssrn.3161323

Febi Wulandari

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

Dorothea Schaefer (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8978 9162 (Phone)
+49 30 8978 9104 (Fax)

JIBS ( email )

Jönköping, 55111
Sweden

Andreas Stephan

Jonkoping University, Jonkoping International Business School ( email )

SE-551 11 Jonkoping
Sweden
55111 (Fax)

Chen Sun

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

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