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 non-green bond yield-spread, the difference with risk-free government bond, increases, the greenium grows. Additionally, it foregrounds how increase isn’t steady: it accelerates as non-green bonds yield spread increase. The research also finds that this non-linearity accounts for the effects of credit spread and coupon rate.