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

Olivier David Zerbib

Journal of Banking & Finance, 2019, vol. 98, issue C, 39-60

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 (search for similar items in EconPapers)
JEL-codes: C23 G12 G14 G20 Q56 (search for similar items in EconPapers)
Date: 2019
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