IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v97y2025ics1057521924007683.html
   My bibliography  Save this article

Stochastic behavior of green bond premiums

Author

Listed:
  • Kanamura, Takashi

Abstract

This paper aims to examine the stochastic behavior of green bond premiums that can characterize the benefits of green bonds. We propose a novel affine model of green bond pricing with mean-reverting interest rates and green bond premiums and a new model parameter estimation method using conventional and green bond prices to capture the stochastic behavior. Then, the model parameter estimation results demonstrate mean-reverting stochastic behavior for conventional bond yield and green bond premium using the US and EU green bond indices for Corporate and three corporate bond indices for intermediate, total, and long-term periods of the Bloomberg Fixed Income Indices from November 3, 2014 to December 11, 2020. Comparative statics using simulated green bond premiums show that green bond premiums orient toward negative values in nature. Moreover, the stochastic behavior of green bond premiums demonstrates that the greenness of green bonds has a downward effect on interest rates in COVID-19 and has a mitigating impact on liquidity risk in corporate bond markets. These results confirm the benefits of green bonds. Finally, the discussions secure the validity of the green bond pricing model by conducting econometric analyses of the regime-switching model, principal component analyses, and the GARCH (1,1) model.

Suggested Citation

  • Kanamura, Takashi, 2025. "Stochastic behavior of green bond premiums," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007683
    DOI: 10.1016/j.irfa.2024.103836
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521924007683
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2024.103836?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Green bond; Affine model; Kalman filter; Green bond premium; Mean-reversion; Liquidity risk premium;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007683. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.