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Liquidity and cost advantage of green bonds

Author

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  • Yan, Ming
  • Li, Xiangqian
  • Zhao, Xing
  • He, Zhuoyi

Abstract

The prevailing scholarly consensus suggests that green bonds benefit from a “green premium” by offering a financing cost advantage over conventional bonds. However, our empirical study reveals significant differences in liquidity between green and conventional bonds that could affect this cost advantage. We investigate the variations in liquidity levels between these bond types and explore how these disparities influence the advantage in financing costs associated with green bonds. The findings show that, due to their unique attributes, green bonds tend to have lower liquidity than conventional bonds; this results in higher liquidity costs, which counterbalance the cost benefits of the green premium. The liquidity disadvantage of green bonds thus weakens the overall financing cost advantage they might otherwise offer through the green premium.

Suggested Citation

  • Yan, Ming & Li, Xiangqian & Zhao, Xing & He, Zhuoyi, 2025. "Liquidity and cost advantage of green bonds," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014624
    DOI: 10.1016/j.frl.2024.106433
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