The effect of pro-environmental preferences on bond prices: Evidence from green bonds

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.
Original languageEnglish
Pages (from-to)39-60
JournalJournal of Banking and Finance
Volume98
DOIs
Publication statusPublished - Jan 2019

Fingerprint

Environmental preferences
Bond prices
Premium
Investors
Bond market
Matching method
Market price

Keywords

  • green bonds
  • socially responsible investing
  • investment preferences
  • liquidity

Cite this

@article{290b9be23b6542b2ba96f9349fb69037,
title = "The effect of pro-environmental preferences on bond prices: Evidence from green bonds",
abstract = "We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.",
keywords = "green bonds, socially responsible investing, investment preferences, liquidity",
author = "Zerbib, {Olivier David}",
year = "2019",
month = "1",
doi = "10.1016/j.jbankfin.2018.10.012",
language = "English",
volume = "98",
pages = "39--60",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier Science BV",

}

The effect of pro-environmental preferences on bond prices: Evidence from green bonds. / Zerbib, Olivier David.

In: Journal of Banking and Finance, Vol. 98, 01.2019, p. 39-60.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - The effect of pro-environmental preferences on bond prices: Evidence from green bonds

AU - Zerbib, Olivier David

PY - 2019/1

Y1 - 2019/1

N2 - We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.

AB - We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.

KW - green bonds

KW - socially responsible investing

KW - investment preferences

KW - liquidity

U2 - 10.1016/j.jbankfin.2018.10.012

DO - 10.1016/j.jbankfin.2018.10.012

M3 - Article

VL - 98

SP - 39

EP - 60

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

ER -