The price of going green: the role of greenness in green bond markets

In this paper, we empirically investigate how greenness information is priced in the green bond market. Our comparison of liquidity-adjusted yield premiums of green bonds versus synthetic conventional bonds indicates that, on average, there is no robust and significant yield premium or discount on green bonds. However, green bonds certified by an external reviewer enjoy a discount of about 6 bps. Furthermore, green bonds that obtain a Climate Bonds Initiative certificate show a discount of around 15 bps. The findings suggest that a universally accepted greenness measure can benefit the development of the green bond market.     

State ownership and the cost of debt: Evidence from corporate bond issuances in China

Corporate credit risk can be reduced through implicit government guarantees. State-owned enterprises (SOEs) in China provide a distinctive setting to investigate government roles in corporate debt financing. We find that non-SOEs’ corporate bond issuance costs are significantly higher than those of SOEs. We also observe relatively lower bond issuance costs for firms controlled by the central government (CSOEs) than those controlled by local governments (LSOEs). In addition, we demonstrate that compared with SOEs, non-SOEs’ financial constraints are mitigated to a larger extent after the bond issuances. Overall, we show that state ownership plays an important role in determining corporate bond issuance costs.     

Do green financial policies offset the climate transition risk penalty imposed on long-term sovereign bond yields?

Asset valuations in high-carbon sectors face significant corrections due to climate risks. This paper specifically analyses whether markets impose a penalty on long-term sovereign bonds issued by countries facing higher climate-related transition risk while rewarding those that have implemented green financial policies to mitigate these risks. We find that higher carbon dioxide emissions and a lower sustainable development score (both proxies for transition risks) lead to an increase in long-term sovereign bond yields. However, the presence of green financial policies appears to offset this climate transition risk premium.     

央票发行对债券收益率影响的实证分析

文章通过对于央票招标日各期限央票、国债、金融债二级市场收益率变动特点的描述性统计,以及央票发行量对债券收益率影响的计量分析,实证考察了央票发行对债券市场收益率的影响效应。结果显示,央票招标日债券市场收益率波动性小于日常水平,且二级市场收益率与央票发行利率差值保持在合理波动范围内,体现了货币政策稳定利率的意图。     

Ethico-economic analysis of impact finance: The case of Green Bonds

This article aims to understand whether Green Bonds (GBs) can be considered an ethical action with a measurable impact, creating ethical and sustainable value beyond economic and financial value. To this end, we attempt to define an ethico-economic framework to understand whether GBs fit into the objectives of action, sociability, humanitarianism, and measurable ethical value, and assess their capacity to constitute a new and powerful instrument in a shared ethical framework.     

Dynamic spillover effects among green bond,renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies

This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity as it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks, using daily data spanning from 4th January 2015 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP-VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest that clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind, emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.     

Voluntary disclosure and adverse selection: Bayesian game theoretical inference for green bond labelling regimes

The impact finance market has sought to ‘internalise externalities and adjust risk perceptions’ (G20 Green Finance Study Group, 2016), demonstrating the private sector’s capability in resolving the climate free-rider problem through the ‘greening’ of economic activities, partially bypassing corrective government intervention. As the market continues to develop, however, the voluntary disclosure regime that the market operates under threatens to enforce an adverse selection problem and contribute to a fundamental erosion of confidence in the market segment, constraining the potential of impact finance instruments to effect positive social and environmental change. This paper relates the work of Crawford and Sobel (1982), Milgrom (1981), Verrecchia (1983), Jung and Kwon (1988), Myers and Majluf (1984) to the green bond market and draws inferences to inform recommendations for policy-led solutions aimed at ensuring the alignment of green bonds’ proceeds to the interests of society (desirable outcomes within the scope of the Paris agreement, for example) and upholding the market’s credibility. This paper additionally explores the transplantation of sustainability linker mechanisms into green bond architecture to ensure simultaneous issuer-level alignment.     

The side effects of quantitative easing: Evidence from the UK bond market

We examine the returns to UK government bonds before, during and between the phases of quantitative easing to identify the side effects for the market itself. We show that the onset of QE led to a sustained reduction in the costs of trading and removed some return regularities. However, controlling for a wide range of market activity, including issuance and QE announcements, we find evidence that investors could have earned excess returns after costs by trading in response to the purchase auction calendar. Drawing on economic theory, we explore the implications of these findings for both the efficiency of the market and the costs of government debt management in both the short and long run.     

The information content of credit ratings: evidence from European convertible bond markets

Prior research has investigated the information content of credit ratings for standard financing instruments such as stocks and corporate bonds, while this question has been neglected for convertible bonds (CBs) so far. CBs are simultaneously determined by the bond floor and the conversion value, which makes it more difficult to assess price effects following rating announcements. In this context, we compare price effects of CBs with those of stocks and corporate bonds of the same issuer using robust event study methods. Our findings indicate that rating changes convey new information for investors in European CBs. In terms of the direction of the expected price reaction, we find CBs to react in a more debt-like manner to the announcement of a rating change. Moreover, our results provide evidence that the magnitude of price reactions differs among different types of securities.     

Preference hierarchies for internal finance, bank loans, bond, and share issues: evidence for Dutch firms

We estimate the incremental financing decision for a sample of some 150 Dutch companies for the years 1984 through 1997, thereby distinguishing internal finance and three types of external finance: bank borrowing, bond issues, and share issues. First, we estimate a multinomial logit model, which confirms several predictions of both the static trade-off theory and the pecking order theory as to the determinants of financing choices. Next, we estimate all possible ordered probit models to determine which financing hierarchy fits the data best. The results suggest that Dutch firms have a unique most preferred financing hierarchy: (i) internal finance, (ii) bank loans, (iii) share issues, and (iv) bond issues.     

A corporate bond innovation of the 90s: The clawback provision in high-yield debt

This paper examines a recent financial innovation in corporate bond contracts, referred to as the clawback provision. A clawback provision in debt contracts gives the issuer an option to redeem a specified fraction of the bond issue within a specified period at a predetermined price and with funds that must come from a subsequent equity offering. We argue that issuers use clawback provisions to mitigate the wealth losses that would otherwise occur when new equity is offered. Consistent with the hypotheses, the evidence shows that bond offerings are more likely to include a clawback provision if their issuers are private, have more intangible assets, have fewer liquid assets, and are unregulated. We also estimate the price of clawback provisions and find that yield spreads on bonds with clawback provisions are a median of 86 basis points higher relative to what they otherwise would be.     

老工业基地绿色金融发展分析:以辽宁为例

绿色金融蓬勃发展成为近年来我国金融业供给侧结构性改革的重要内容,也是助推老工业基地全面振兴的重要举措。文章深入分析辽宁省绿色金融发展现状,总结了绿色金融发展中存在的突出问题,提出进一步推动老工业基地绿色金融发展应深化绿色发展理念,加强部门协调和信息共享,加大政策支持力度,加快绿色金融专业人才培养。     

The impact of economic news on bond prices: Evidence from the MTS platform

Although there is an extensive literature on the impact of macroeconomic announcements on asset prices, the bond market has received less attention than the foreign exchange and equity markets, even less if we consider the European market. This paper uses high-frequency intra-day data over a three-year period to investigate the impact of regularly scheduled macroeconomic news and monetary policy announcements on the returns of the Italian government bond market, the largest one in the Euro-zone. With respect to the previous papers, we use a much broader set of announcements, 68, and a relatively novel dataset (MTS). We find that 25 news have a significant impact on bond returns and that almost all announcements are incorporated into prices within 20 min from the release.     

Long-term government bond yields and macroeconomic fundamentals: Evidence for Greece during the crisis-era

This paper studies the influence of macroeconomic fundamentals and the underlying 10 years Greek government bonds. We examine for the period between Q12001 up to end to Q42012, applying four major macroeconomic variables such as Debt to GDP ratio, deficit, inflation and unemployment. We found that, overall, deficit, inflation and unemployment among others, play a more significant role as determinants of the 10-year Greek bond yield, while isolating the period during the crisis macroeconomic factors strengthen their affect to the Greek Debt market.     

Identifying the dynamics of real interest rates and inflation: evidence using survey data

In the context of an equilibrium asset-pricing model, the dynamicsof the instantaneous real interest rate and the instantaneousrate of expected inflation are estimated. Unlike previous models,we allow real interest rates and inflation to be mutually dependentprocesses. The model is estimated as a state-space system thatincludes observations on various maturity Treasury bills andNBER-ASA survey forecasts of inflation. Over the period 1968-1988,we find evidence that instantaneous real interest rates andexpected inflation are significantly negatively correlated.Real interest rates also display greater volatility and weakermean reversion than expected inflation.     

Modeling the business risk of financially weakened firms: A new approach for corporate bond pricing

Most structural models of default risk assume that the firm's asset return is normally distributed, with a constant volatility. By contrast, this article details the properties that the process of assets should have in the case of financially weakened firms. It points out that jump-diffusion processes with time-varying volatility provide a refined and accurate perspective on the business risk dimension of default risk. Representative Arrow-Debreu state price densities (SPD) and term structures of credit spreads are then explored. The credit curves show that the business uncertainties play a major in the pricing of corporate liabilities.     

Modelling illiquidity spillovers with Hawkes processes: an application to the sovereign bond market

Modelling the dynamics of (il)liquidity across assets is an important yet complicated task, especially when considering significant deteriorations of liquidity conditions. Here, we propose a peak-over-threshold method to identify abrupt liquidity drops from limit order book data and we model the time-series of these illiquidity events across multiple assets as a multivariate Hawkes process. This allows us to quantify both the self-excitation of extreme changes of liquidity in the same asset (illiquidity spirals) and the cross-excitation across different assets (illiquidity spillovers). Applying the method to the MTS sovereign bond market, we find significant evidence for both illiquidity spillovers and spirals. The proportion of shocks explained by illiquidity spillovers roughly doubles from 2011 to 2015, suggesting an increased synchronization of extreme illiquidity across assets.     

Catastrophe bond pricing in the primary market: The issuer effect and pricing factors

COVID pandemic has highlighted the importance of hedging against catastrophic events, for which the catastrophe bond market plays a critical role. Our paper develops a two-level modelling and uses a unique, hand-collected dataset, which is one of the largest and most detailed datasets to date containing: 101 different issuers, 794 different bonds, spanning 1997–2020. We identify issuer effects robustly, isolating them from bond specific pricing effects, therefore providing more credible pricing factor results. We find that bond pricing and volatility are heavily impacted by the issuer, causing 26% of total price variation. We also identify specific issuer characteristics that significantly impact bond pricing and volatility, such as the issuer’s line of business accounting for up to 36% of total price variation. We further find that issuer effects are significant over different market cycles and time periods, causing substantial price variation. The size and content of our data also enables us to identify the counter-intuitive relation between bond premiums and maturity, and bond premiums and hybrid bond triggers.     

Illiquidity or credit deterioration: A study of liquidity in the US corporate bond market during financial crises

We investigate whether liquidity is an important price factor in the US corporate bond market. In particular, we focus on whether liquidity effects are more pronounced in periods of financial crises, especially for bonds with high credit risk, using a unique data set covering more than 20,000 bonds, between October 2004 and December 2008. We employ a wide range of liquidity measures and find that liquidity effects account for approximately 14% of the explained market-wide corporate yield spread changes. We conclude that the economic impact of the liquidity measures is significantly larger in periods of crisis, and for speculative grade bonds.     

Bond yields and debt supply: new evidence through the lens of a preferred-habitat model

This paper examines the responsiveness of bond yields to changes in debt supply. The preferred-habitat theory predicts a positive relation between the term spread and relative supply of longer term debt, and that this relation is stronger when risk aversion is high. To capture this effect, a time-varying coefficient model is introduced and applied to German bond data. The results support the theoretical predictions and indicate substantial time variation: under high risk aversion, yield spreads react about three times more strongly than when risk aversion is low. The accumulated response of term spreads to a one standard deviation change in debt supply ranges between 4 and 46 basis points.