The Effect of Green Bond Labels in Emerging Markets

Abstract

This study examines the influence of the green bond label on bond yields in emerging markets. Employing a matching method along with a comprehensive regression analysis, this research estimates the yield differential between green bonds and equivalent conventional bonds from April 2023 to April 2024. The results reveal a small, yet significant, negative premium where the yield of green bonds is lower than that of conventional bonds, averaging a -4.8 basis points differential for the entire sample. The premium is notably larger for higher-rated bonds and those issued in Chinese Yuan, suggesting distinct market behaviors. The findings highlight that the influence of investors’ sustainable investment preferences on bond prices, while modest, does not currently act as a disincentive for investors to engage with and expand the green bond market in these regions.