The pricing of green bonds: external reviews and the shades of green

By Gregor Dorfleitner, Sebastian Utz, Rongxin Zhang. Reviews of Management Sciences, 2020

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We investigate the asset pricing implications of the greenness of bonds. To estimate a green-pricing effect, we determine the ‘green bond premium’ as the difference between the yields of matched conventional and green-labeled bonds. On a cross-sectional average, green bonds experience a statistically significant positive premium. This premium increases with external greenness evaluations, i.e., investors accept premiums of up to 5 basis points for bonds with a substantial environmental agenda. This external validation effect, which is strongest for bonds that are rated dark-green, may offset not incurring information costs, as this effect decreases with increasing age of bonds.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/130ca87df723d8f5231f830ae230ec8d6a1a197e