The Impacts of the COVID-19 Pandemic on the European Green Bond Market

• Main Authors: Shi, Ying, Jurevica, Kristine
• Format: Others
• Language: English
• Published: Uppsala universitet, Företagsekonomiska institutionen 2021
• Subjects: Green Bonds; Green Bond Premium; Bond Yield; Volatility; COVID-19; Business Administration; Företagsekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-448481

This thesis examined the effect of non-financial motives, namely pro-environmental or sustainability preference, in bond pricing on the European secondary market before and during the COVID-19 crisis over the period 02.01.2019-26.02.2021. To estimate the potential yield spread between green bonds and matched conventional bonds, we applied a stringent matching method and fixed-effect regression to explore the green bond premium. The result indicated a small positive premium of 0.46 bps before the COVID-19 (01.2019-02.2020) and a small negative premium of 0.2 bps during the ongoing COVID-19 crisis (03.2020-02.2021), and the premiums have significantly changed between the two study periods, implying that the COVID-19 had a significant effect on the GB premium. Thus, before the pandemic, investors demanded compensation in the form of a higher yield return on investing in green bonds; however, during the pandemic, investors are willing to accept a lower yield on the GBs in comparison to the equivalent CB to finance environmentally-friendly projects. Additionally, the paper investigated bond volatility by analyzing the standard deviation of the daily yield. Although green bonds tended to have a higher volatility, no robust conclusion could be drawn due to a lack of statistical significance.