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JOURNAL: Rethinking greenium: a quadratic function of yield spread
Summary
Authors:
Chih-Yueh Huang
David Dekker
Dimitrios Christopoulos
Heriot-Watt University
MODUL University Vienna
Rethinking greenium: a quadratic function of yield spread
Finance Research Letters
June 2023
This research suggests a new approach to the estimation of the ‘greenium,’ the difference in value between green bonds and similar non-green bonds. Instead of using the usual method of comparing the yields of these bonds, the research shows the value of understanding the greenium as a function of non-green bond yield spread.
The research shows that the greenium increases when the difference in yields between non-green bonds is larger – so, the bigger the difference in yields between non-green bonds, the larger the greenium. Additionally, it foregrounds how increase isn’t steady: it accelerates as the difference in yields between non-green bonds grows. The research also finds that this non-linearity accounts for the effects of credit spread and coupon rate.