TY - JOUR
T1 - Uncovering the greenium: investigating the yield spread between green nad conventional bonds
AU - Fandella, Paola
PY - 2024
Y1 - 2024
N2 - 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.
AB - 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.
KW - Green bonds, yield spread, greenium, liquidity, matching, duration, regression
KW - Green bonds, yield spread, greenium, liquidity, matching, duration, regression
UR - http://hdl.handle.net/10807/273983
U2 - 10.21511/imfi.21(2).2024.05
DO - 10.21511/imfi.21(2).2024.05
M3 - Article
SN - 1810-4967
VL - Volume 21, Issue 2, 2024
SP - 1
EP - 14
JO - INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS
JF - INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS
ER -