Green Bonds Premia: A Comparison Across the Europe, Asia, and North America

Abstract

This thesis investigates whether green bonds are priced differently in geographically distant markets when compared to conventional bonds. This is done by analyzing the ask-yield difference between green bonds and conventional bonds in the period from the 1st of April to the 30th of September 2022. The current literature on green bond premia has not come to a conclusion on whether a green bond premium exists or not. The aim of this thesis is, therefore, to investigate whether different markets carry different premia, which in terms could lead to different conclusions. In doing so, we first applied a matching method to ensure that we have two comparable samples (Kreander et al., 2005; Renneboog et al., 2008; Bauer et al., 2005). Then the two-layer regression model by Zerbib (2019) was used in order to determine both the presence and the factors determining the green bond premium.
In the first layer regression model, we found that the global, North American, and Asian samples indicate highly significant evidence of a negative green bond premium. For the European sample, a positive green bond premium was found, however, with a slightly lower significance level suggesting regional differences in the green bond premium.
In the second layer regression model, we found that the currencies AUD, NOK, CHF, and CAD increased the magnitude of the green bond premium in all markets besides Asia. For the Asian sample, we were not able to find any significant factor determining the green bond premium, suggesting that the green bond premium in Asia is determined by factors outside our data sample.
The findings in this thesis are to be viewed as the first step in understanding why different results have been found for the green bond premium. The findings overall show that there are regional differences to have in mind when further examining this area.