Estimation of green bond premiums in the Chinese secondary market

Vol: 
38/2022
Author name: 
Janda, K
Kortusova, A
Zhang, B
Year: 
2022
Month: 
May
Abstract: 

Green bonds have gained prominence in China’s capital market as tools that help to fuel the transition to a climate-resilient economy. Although the issuance volume in the Chinese green bond market has been growing rapidly in recent years, the impact of the green label on bond pricing has not been adequately studied. Therefore, this paper investigates whether the newly developed financial instrument offers investors in China an attractive yield compared to other equivalent conventional bonds. By matching green bonds with their conventional counterparts and subsequently applying a fixed-effects estimation, our empirical results reveal a significant negative green bond yield premium of -1.8 bps on average in the Chinese secondary market. In addition, the yield premium is found to vary across issuers’ business sectors mainly due to the public reputation of bond issuers. Moreover, our empirical results reveal an insignificant relationship between the green certification and the yield premium, possibly reflecting inconsistent green bond standards in the Chinese market. Our results point to some practical implications for policymakers and investors.

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