The Pricing of Green Bonds at Issuance : Is There Underpricing or a "Greenium"?

Sammanfattning: This paper examines if green bonds incur underpricing or overpricing, that is, have a "greenium", at issuance. Using a global sample of 830 liquid green bonds priced between March 20, 2012 and March 24, 2022, this study estimates an empirical model of the initial returns through ordinary least squares and quantile regressions. The results show that mispricing is absent from the sample green bonds. However, the conditional median and mean initial returns of the sample, excluding private placements, are significant and amount to −5.4 basis points (bps) and −2.9 bps, respectively. Likewise, the bonds priced since 2021 sell at a greenium, amounting to −10.6 bps and −10.9 bps for the average and median green bond, respectively. Overall, the results support the signaling hypothesis that issuers of investment grade bonds incur a cost to signal their type to investors. Moreover, first-time green bond issuers need to compensate investors for becoming informed about their "green credibility". Contrary to the price pressure hypothesis, mega green bonds sell at a greenium due to high visibility and expected secondary market liquidity.