A Comparative Analysis of the Performance of Euro-Denominated Green and Conventional Bonds

Sammanfattning: The green bond market has seen exponential growth since its boom in 2013 but literature on this topic is considered woefully inadequate. This research paper therefore seeks to compare the performance of European green bonds against its conventional counterparts. Analysis was conducted on two data samples spanning from the year 2013 to 2019 using the matching principle and an extended Fama-French model. In comparison to other green bond studies, we uniquely use the Merton model to calculate the default factor for the Fama-French regressions. The main results illustrate that conventional bonds outperform green bonds and shows that the Merton model fits the Fama-French model better than the DEF factor used in the original paper (Fama & French, 1993). This thesis therefore serves as a contribution to literature on the performance of bonds as an asset class and explains relevant models that can be used in analysing this performance.