Uncovering the greenium: Investigating the yield spread between green and conventional bonds
Green bonds are an increasingly used instrument to catalyze cash flows towards a low-carbon economy. Nonetheless, the existence of an actual price advantage is still uncertain. This research paper aims to assess whether there is a green bond premium (“greenium”) for green bonds relative to conventio...
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2024-04-01
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| Series: | Investment Management & Financial Innovations |
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| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/19908/IMFI_2024_02_Fandella.pdf |
| _version_ | 1826953748104085504 |
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| author | Paola Fandella Valentina Cociancich |
| author_facet | Paola Fandella Valentina Cociancich |
| author_sort | Paola Fandella |
| collection | DOAJ |
| description | Green bonds are an increasingly used instrument to catalyze cash flows towards a low-carbon economy. Nonetheless, the existence of an actual price advantage is still uncertain. This research paper aims to assess whether there is a green bond premium (“greenium”) for green bonds relative to conventional bonds with similar characteristics, and how liquidity may affect the determination of a price advantage. It analyzes the yield differentials between green and conventional bonds using three different methods. First, a Nelson-Siegel-Svensson method is executed, estimating the premium both as the yield spreads and as the differentials in Z-spreads. Using a matching method and creating a sample of green and synthetic conventional bonds, the second methodology consists in calculating the distances between each categories’ yield for the same duration. Finally, a fixed-effect regression is performed to better control the liquidity bias. In the first case, a positive premium emerges when analyzing the yield spreads (+37.89 basis points) and the Z-spreads (+10.62 basis points). The second method mitigates the liquidity risk by creating a sample of synthetic bonds and reveals a yield spread of –15.89 basis points. Lastly, the regression method shows a negative greenium equal to –17.1487 basis points. Thus, a greenium emerges from all the three different methods, but its nature, sign, and real determinants are still uncertain. It is, therefore, not possible to conclude a definite price advantage for issuers of green bonds. |
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| format | Article |
| id | doaj.art-e157938c59074080913b879c3be4e00d |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2025-02-17T23:26:41Z |
| publishDate | 2024-04-01 |
| publisher | LLC "CPC "Business Perspectives" |
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| series | Investment Management & Financial Innovations |
| spelling | doaj.art-e157938c59074080913b879c3be4e00d2024-12-02T05:34:08ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582024-04-01212566910.21511/imfi.21(2).2024.0519908Uncovering the greenium: Investigating the yield spread between green and conventional bondsPaola Fandella0https://orcid.org/0000-0002-3494-9172Valentina Cociancich1Associate Professor of Banking and Finance, Economics Faculty, Economics and Business Management Sciences Department, Universita Cattolica del Sacro Cuore, ItalyResearch Fellow in Banking and Finance, Economics Faculty, Economics and Business Management Sciences Department, Universita Cattolica del Sacro Cuore, ItalyGreen bonds are an increasingly used instrument to catalyze cash flows towards a low-carbon economy. Nonetheless, the existence of an actual price advantage is still uncertain. This research paper aims to assess whether there is a green bond premium (“greenium”) for green bonds relative to conventional bonds with similar characteristics, and how liquidity may affect the determination of a price advantage. It analyzes the yield differentials between green and conventional bonds using three different methods. First, a Nelson-Siegel-Svensson method is executed, estimating the premium both as the yield spreads and as the differentials in Z-spreads. Using a matching method and creating a sample of green and synthetic conventional bonds, the second methodology consists in calculating the distances between each categories’ yield for the same duration. Finally, a fixed-effect regression is performed to better control the liquidity bias. In the first case, a positive premium emerges when analyzing the yield spreads (+37.89 basis points) and the Z-spreads (+10.62 basis points). The second method mitigates the liquidity risk by creating a sample of synthetic bonds and reveals a yield spread of –15.89 basis points. Lastly, the regression method shows a negative greenium equal to –17.1487 basis points. Thus, a greenium emerges from all the three different methods, but its nature, sign, and real determinants are still uncertain. It is, therefore, not possible to conclude a definite price advantage for issuers of green bonds.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/19908/IMFI_2024_02_Fandella.pdfdurationgreen bondsgreeniumliquiditymatchingregression |
| spellingShingle | Paola Fandella Valentina Cociancich Uncovering the greenium: Investigating the yield spread between green and conventional bonds Investment Management & Financial Innovations duration green bonds greenium liquidity matching regression |
| title | Uncovering the greenium: Investigating the yield spread between green and conventional bonds |
| title_full | Uncovering the greenium: Investigating the yield spread between green and conventional bonds |
| title_fullStr | Uncovering the greenium: Investigating the yield spread between green and conventional bonds |
| title_full_unstemmed | Uncovering the greenium: Investigating the yield spread between green and conventional bonds |
| title_short | Uncovering the greenium: Investigating the yield spread between green and conventional bonds |
| title_sort | uncovering the greenium investigating the yield spread between green and conventional bonds |
| topic | duration green bonds greenium liquidity matching regression |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/19908/IMFI_2024_02_Fandella.pdf |
| work_keys_str_mv | AT paolafandella uncoveringthegreeniuminvestigatingtheyieldspreadbetweengreenandconventionalbonds AT valentinacociancich uncoveringthegreeniuminvestigatingtheyieldspreadbetweengreenandconventionalbonds |