Liquidity and cost advantage of green bonds

Ming Yan, Xiangqian Li, Xing Zhao and Zhuoyi He

Finance Research Letters, 2025, vol. 71, issue C

Abstract: The prevailing scholarly consensus suggests that green bonds benefit from a “green premium” by offering a financing cost advantage over conventional bonds. However, our empirical study reveals significant differences in liquidity between green and conventional bonds that could affect this cost advantage. We investigate the variations in liquidity levels between these bond types and explore how these disparities influence the advantage in financing costs associated with green bonds. The findings show that, due to their unique attributes, green bonds tend to have lower liquidity than conventional bonds; this results in higher liquidity costs, which counterbalance the cost benefits of the green premium. The liquidity disadvantage of green bonds thus weakens the overall financing cost advantage they might otherwise offer through the green premium.

Keywords: Green Bonds; Green Premium; Liquidity Level; Financing Cost (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014624

DOI: 10.1016/j.frl.2024.106433

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