Does a Green Bond Premium Exist? A Study on the Difference in Yield between Green and Conventional Bonds

Heidi Stenmark

Student thesis: Master thesis


Due to the rapid growth in the green bond market over the last years, the question of whether or not it exists any difference in yield for green bonds has been raised frequently. This master thesis investigates the difference in yield between green and conventional bonds, referred to as the green bond premium, in both the primary and secondary market. A statistical approach is applied, and the green bond premium is estimated by regression analysis. In the primary market analysis, the issue yield is regressed on the green label of the bond, in addition to control for other factors that can affect the yield. A lower yield of 17.2 bps for green bonds is revealed, based on a pooled cross sectional data sample which consists of 138 green bonds and 8 936conventional bonds issued from 2011 to 2020. Further, bonds issued in euro on average have24.3 bps lower yield than conventional bonds issued in the same currency. In the secondary market analysis, each green bond is matched with a comparable conventional bond, and a green bond premium is estimated for each pair by a fixed effects regression model. On average, the secondary market analysis finds no evidence of a green bond premium. Furthermore, the green bond premium varies across the bond pairs from -32 bps to 30 bps.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2020
Number of pages66