Deciphering Greenium: the Role of Investor Demand

66 Pages Posted: 23 Jun 2022 Last revised: 31 Jul 2023

See all articles by Liying Wang

Liying Wang

University of Nebraska at Lincoln

J. (Julie) Wu

University of Nebraska - Lincoln

Date Written: February 1, 2022

Abstract

Using security-level bookbuilding data, we analyze the pricing and demand for green bond offerings (GBOs) compared to their conventional counterparts. We show that greenium arises from a somewhat lower initial offering spread and larger spread tightening after bookbuilding, consistent with our finding that investor demand is typically higher for GBOs but varies considerably. These results suggest that investor-tastes models explain greenium. Further analyses do not support the temporary price pressure or liquidity preference arguments. Finally, we find investors' lower price sensitivity for GBOs also contributes to greenium. Overall, our study suggests that realizations of investor demand drive the observed greenium.

Keywords: Green bonds, primary market, ESG investing, investor demand, investor tastes, price sensitivity, greenium

JEL Classification: G12, G14, G23, G24, G30

Suggested Citation

Wang, Liying and Wu, J. (Julie), Deciphering Greenium: the Role of Investor Demand (February 1, 2022). Available at SSRN: https://ssrn.com/abstract=4136605 or http://dx.doi.org/10.2139/ssrn.4136605

Liying Wang (Contact Author)

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

J. (Julie) Wu

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
334
Abstract Views
1,377
Rank
150,966
PlumX Metrics