Greening the Financial Sector One Bond at a Time
(2024) BUSN79 20241Department of Business Administration
- Abstract
- Purpose: This study aims to determine if a greenium exists for bank-issued green bonds compared to their brown counterparts and to examine the impact of green policies on the European bond market.
Methodology: This study takes on a deductive scientific approach along with an econometric approach for which OLS regression models are estimated. The regressions use yield to maturity (YTM) as the dependent variable, with proxy variables for green bonds, the ECB's APP as well as PEPP, the SFDR and the EU taxonomy as the main explanatory variables.
Theoretical perspectives: The theoretical perspective for this paper consists of the efficient market hypothesis (EMH), signaling theory and the concept of a greenium existing in the bond... (More) - Purpose: This study aims to determine if a greenium exists for bank-issued green bonds compared to their brown counterparts and to examine the impact of green policies on the European bond market.
Methodology: This study takes on a deductive scientific approach along with an econometric approach for which OLS regression models are estimated. The regressions use yield to maturity (YTM) as the dependent variable, with proxy variables for green bonds, the ECB's APP as well as PEPP, the SFDR and the EU taxonomy as the main explanatory variables.
Theoretical perspectives: The theoretical perspective for this paper consists of the efficient market hypothesis (EMH), signaling theory and the concept of a greenium existing in the bond market. Additionally, the study incorporates theoretical frameworks related to quantitative easing policies and accounting standards.
Empirical foundation: The empirical foundation consists of 295 green bonds and 5904 brown bonds issued by the 25 largest listed banks in the EU between the years of 2013-2023. The total amount of observations is 6199.
Conclusions: Green bonds issued by banks in the EU generally exhibit a greenium, meaning that they have lower yields to maturity compared to brown bonds. The quantitative easing programs implemented by the ECB, the APP and PEPP, have a mixed impact on these yields. While both programmes generally reduce bond yields, their effects on green bonds are not as unequivocal compared to brown bonds. The accounting-based policies, the SFDR and EU taxonomy, show no significant direct impact on bond yields, except when accounting for delayed reactions to the implementation of each policy, at which point the EU taxonomy indicates a small greenium. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9167866
- author
- Hallros, John LU and Lundström, Erik LU
- supervisor
- organization
- alternative title
- Greening the financial sector one bond at a time – Investigating the existence of a greenium in the market for bank-issued bonds and the effect of green policies in the European Union
- course
- BUSN79 20241
- year
- 2024
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Greenium, Green bonds, Quantitative easing, Accounting policies, Yield to maturity
- language
- English
- id
- 9167866
- date added to LUP
- 2024-08-07 16:07:37
- date last changed
- 2024-08-07 16:07:37
@misc{9167866,
abstract = {{Purpose: This study aims to determine if a greenium exists for bank-issued green bonds compared to their brown counterparts and to examine the impact of green policies on the European bond market.
Methodology: This study takes on a deductive scientific approach along with an econometric approach for which OLS regression models are estimated. The regressions use yield to maturity (YTM) as the dependent variable, with proxy variables for green bonds, the ECB's APP as well as PEPP, the SFDR and the EU taxonomy as the main explanatory variables.
Theoretical perspectives: The theoretical perspective for this paper consists of the efficient market hypothesis (EMH), signaling theory and the concept of a greenium existing in the bond market. Additionally, the study incorporates theoretical frameworks related to quantitative easing policies and accounting standards.
Empirical foundation: The empirical foundation consists of 295 green bonds and 5904 brown bonds issued by the 25 largest listed banks in the EU between the years of 2013-2023. The total amount of observations is 6199.
Conclusions: Green bonds issued by banks in the EU generally exhibit a greenium, meaning that they have lower yields to maturity compared to brown bonds. The quantitative easing programs implemented by the ECB, the APP and PEPP, have a mixed impact on these yields. While both programmes generally reduce bond yields, their effects on green bonds are not as unequivocal compared to brown bonds. The accounting-based policies, the SFDR and EU taxonomy, show no significant direct impact on bond yields, except when accounting for delayed reactions to the implementation of each policy, at which point the EU taxonomy indicates a small greenium.}},
author = {{Hallros, John and Lundström, Erik}},
language = {{eng}},
note = {{Student Paper}},
title = {{Greening the Financial Sector One Bond at a Time}},
year = {{2024}},
}