Peer-reviewed
The impact of liquidity risk on the yield spread of green bonds
• We investigate the effects of the liquidity premium on the green bond yield spread. • Two measures of liquidity are employed: the LOT measure and the bid-ask spread. • Both the LOT liquidity and the bid-ask measure are positively related to the yield spread. • Results hint at a growing maturity of green bonds markets.
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
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
Article, 2018