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The impact of liquidity risk on the yield spread of green bonds

Author

Listed:
  • Febi, Wulandari
  • Schäfer, Dorothea
  • Stephan, Andreas
  • Sun, Chen

Abstract

This study analyses how liquidity risk affects bonds’ yield spreads after controlling for credit risk, bond-specific characteristics and macroeconomic variables. Using two liquidity estimates, LOT liquidity and the bid-ask spread, we find that, in particular, the LOT liquidity measure has explanatory power for the yield spread of green bonds. Overall, however, the impact of LOT decreases over time, implying that, nowadays liquidity risk is negligible for green bonds.

Suggested Citation

  • Febi, Wulandari & Schäfer, Dorothea & Stephan, Andreas & Sun, Chen, 2018. "The impact of liquidity risk on the yield spread of green bonds," Finance Research Letters, Elsevier, vol. 27(C), pages 53-59.
    • Handle: RePEc:eee:finlet:v:27:y:2018:i:c:p:53-59
    DOI: 10.1016/j.frl.2018.02.025
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Green bond; Liquidity risk; Yield spread; Sustainable investment; Fixed income security; Financial innovation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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