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.

Fandella, P., Cociancich, V., Uncovering the greenium: investigating the yield spread between green nad conventional bonds, <<INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS>>, 2024; Volume 21, Issue 2, 2024 (2): 1-14. [doi:10.21511/imfi.21(2).2024.05] [https://hdl.handle.net/10807/273983]

Uncovering the greenium: investigating the yield spread between green nad conventional bonds

Fandella, Paola
Primo
Project Administration
;
2024

Abstract

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.
2024
Inglese
Fandella, P., Cociancich, V., Uncovering the greenium: investigating the yield spread between green nad conventional bonds, <<INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS>>, 2024; Volume 21, Issue 2, 2024 (2): 1-14. [doi:10.21511/imfi.21(2).2024.05] [https://hdl.handle.net/10807/273983]
File in questo prodotto:
File Dimensione Formato  
IMFI_issue_2_2024_Paola Fandella_9678IOEVALENTINA.pdf

accesso aperto

Tipologia file ?: Versione Editoriale (PDF)
Licenza: Creative commons
Dimensione 554.62 kB
Formato Adobe PDF
554.62 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/273983
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 0
  • ???jsp.display-item.citation.isi??? ND
social impact