Climate change risk and green bond pricing

Alfonso Del Giudice, Silvia Rigamonti and Andrea Signori

Journal of Empirical Finance, 2025, vol. 82, issue C

Abstract: We investigate whether climate change risk is accurately priced in the bond market. Green bonds outperform brown bonds after a climate-related disaster, consistent with investors adjusting their preference towards green assets. We then examine whether the post-disaster reaction is rational or affected by a behavioral bias. Our findings reveal two key patterns supporting the behavioral explanation: first, the impact of disasters on green bond prices is temporary as it fully reabsorbs by the fifth month after the event; second, the effect weakens as disasters become more repetitive. Overall, the evidence indicates that investors overreact in the immediate aftermath of a disaster and this overreaction fades as the event becomes less salient.

Keywords: Green bond; Climate change risk; Natural disasters; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G12 G41 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:82:y:2025:i:c:s0927539825000386

DOI: 10.1016/j.jempfin.2025.101616

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