Abstract
The rapid growth of the green bond market over the last few years with new diverse investors and issuers entering the market has emphasized the need for increased understanding of the behaviour of the green bond market in relation to the conventional bond market. Sweden is a prominent country within the green bond market and SEK represents a substantial currency for global green bond issuance. This Master thesis investigates the return and behaviour of green bonds in relation to investment grade corporate and sovereign bonds on the represented Swedish market. The study is based on return index data retrieved from S&P Dow Jones Indices, over the period 2009-2021, where two sub-sample periods are analyzed; 2009-2013 and 2014-2021. Firstly, the existence of a green bond premium is investigated through descriptive analysis and OLS-regressions on the return differences. Secondly, an asset class perspective analyzing return correlations over different time periods is applied. Lastly, the investor perspective on the green bond market is elaborated. Restrictions associated with the Covid-19 pandemic have caused certain adjustments and limitations along the process of conducting the study. The findings suggest that; i) the green bonds represented offer excess returns along with higher standard deviations in relation to the represented non-green bonds, mainly explained from the sub-sample period 2014-2021. A potential positive green premium is identified ranging between 0.6 bps and 1.1 bps. ii) The green bonds offer diversification benefits particularly combined with the corporate bonds, which are pronounced during periods of greater market volatility. Hence, the findings suggest that the green bonds in this study behave as a separate asset class. iii) General sustainability focus, longer investment horizons and demand for green bonds issued in local currencies tend to contribute to the increasing investor demand and growth of the green bond market in Sweden.
| Educations | MSc in Applied Economics and Finance, (Graduate Programme) Final Thesis |
|---|---|
| Language | English |
| Publication date | 2021 |
| Number of pages | 111 |