Advertisement

Differences Between Green Bonds Versus Conventional Bonds

An Empirical Exploration
  • Suk HyunEmail author
  • Donghyun Park
  • Shu Tian
Living reference work entry
Part of the Sustainable Development book series (SD)

Abstract

This chapter empirically investigates how the green bond markets price greenness. Using the liquidity-adjusted yield premium of green bonds over their synthetic conventional bonds, this study explores the possible determinants that drive green bond premiums. Evidence shows that, on average, there is no significant yield premium or discount on green bonds compared with their paired conventional bonds. Interestingly, in the case of a subsample, such as the euro and the US dollar, to control for the currency effect, most explanatory variables are not statistically significant, which suggests that a green bond premium does not exist in dollar-denominated and euro-denominated bonds, while a green bond premium does exist in other currency-denominated bonds. However, green bonds are also not standardized instruments. Certain factors, like “greenness,” are necessary to match the needs of issuers and investors. These factors might have an impact on the price, liquidity, and volatility of green bonds.

Keywords

Green bond Green premium Market development 

JEL Classification

G12 G14 G19 

References

  1. ASEAN Capital Market Forum (2017) ASEAN green bond standards. ACMF Secretariat, MalaysiaGoogle Scholar
  2. Asian Development Bank (ADB) (2018) Promoting green local currency bonds for infrastructure development in ASEAN+3. ADB, MandaluyongCrossRefGoogle Scholar
  3. Barclays (2015) The cost of being green. Barclays, New YorkGoogle Scholar
  4. CICERO (2015) Background report on long-term climate finance prepared for the German G7 presidency 2015 by CICERO and Climate Policy Initiative, GermanyGoogle Scholar
  5. Ehlers T, Packer F (2017) Green bond finance and certification. BIS Quarterly Review, September 2017. https://ssrn.com/abstract=3042378
  6. European Union (2016) Study on the potential of green bond finance for resource-efficient investments. LuxembourgGoogle Scholar
  7. International Capital Market Association (ICMA) (2017) The green bond principles 2017. ICMA, ParisGoogle Scholar
  8. Östlund E (2015) Are investors rational profit maximizers or do they exhibit a green preference? evidence from the green bond market. Stockholm School of Economics master’s thesis in economics (21875), StockholmGoogle Scholar
  9. Petrova A (2016) Green bonds: lower returns on higher responsibility? Radboud University master thesis (S4461746), NijmegenGoogle Scholar
  10. Standard & Poor’s Ratings Services (2016) The corporate green bond market fizzes as the global economy decarbonizes. New YorkGoogle Scholar
  11. VanEck (2017) What drives green bond returns? Market Realist. https://www.vaneck.com
  12. Veys A (2010) The sterling bond markets and low carbon or green bonds. E3GGoogle Scholar
  13. Wulandari F, Dorothea S, Andreas SC (2018) Liquidity risk and yield spreads of green bonds. DIW, BerlinCrossRefGoogle Scholar
  14. Yoshino N, Abidhadjaev U (2016) Impact of infrastructure investment on tax: estimating spillover effects of the Kyushu high-speed rail line in Japan on regional tax revenue. ADBI working paper 574. Asian Development Bank Institute, TokyoGoogle Scholar
  15. Zerbib OD (2017) The green bond premium. SSRN working paper. Zurich. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889690

Copyright information

© Asian Development Bank Institute 2019

Authors and Affiliations

  1. 1.East Asia International CollegeYonsei UniversityWonjuRepublic of Korea
  2. 2.Economic Research and Regional Cooperation DepartmentAsian Development BankManilaPhilippines

Personalised recommendations