Econometrical issues in measuring the greenium: Evidence from corporate bonds issued in euros

Abstract

With the world on course to breach the 1.5°C threshold within five years, it is now or never to avert the climate disaster. Scholars have recently studied green bonds as they offer a promising solution for financing the energy transition. They revealed that issuing green bonds comes with pricing advantages, known as the green bond premium or greenium. This thesis estimatesthe greenium for euro-denominated corporate bonds using novel loose and strict Coarsened Exact Matching (CEM) algorithms. The loose CEM discovered a significant 12.99 basis points (bps) greenium. The greenium became insignificant, however, when loose CEM matched issuers to control for unobservable issuer heterogeneities, although a highly significant 16.20 bps greenium persisted for utilities. Furthermore, the strict CEM found a significant 14.76 bps greenium. Greenium significance persisted when strict CEM matched issuers, and the greenium’s size even doubled to 29.83 bps. Exploring K2K CEMs, this thesis revealed that K2K discards relevant bonds and estimates the greenium inconsistently. In addition to providing novel empiric evidence, this research demonstrates that the applied method materially affects results. This paper, therefore, intends to initiate a discussion on how to best estimate the greenium and interpret prior scholars' heterogeneous results.