Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 305: Liquidity risk and yield spreads of green bonds

Febi Wulandaria, Dorothea Schäfer, Andreas Stephan () and Chen Sun
Additional contact information
Febi Wulandaria: Jönköping International Business School, Postal: Jönköping International Business School, Jönköping, Sweden
Dorothea Schäfer: German Institute for Economic Research DIW Berlin, Postal: German Institute for Economic Research DIW, Berlin, Berlin, Germany
Andreas Stephan: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Chen Sun: CERBE

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.

Keywords: Green Bond; Liquidity Risk; Yield Spread; Sustainable Investment; Fixed Income Security; Financial Innovation

JEL-codes: G12; G32

23 pages, January 17, 2018

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