The effect of pro environmental preferences on bond prices: Evidence from green bonds
We use green bonds as an instrument to identify the effect of non pecuniary motives, specifically pro environmental preferences, on bond market prices. We perform a matching method, followed by a two step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is 2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low rated bonds. The results emphasize the low impact of investors' pro environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.