The Pricing and Ownership of US Green Bonds
Abstract
We review the pricing and ownership of green bonds, whose proceeds are used for environmentally focused purposes. After presenting an overview of the literature on green securities and green bonds in particular, we summarize the US corporate and municipal green bond markets. Green municipal bonds provide the best opportunity for detailed empirical study of how pricing and ownership differ from those of ordinary bonds. Green bonds are issued at a small premium of several basis points over similar ordinary bonds except when they are issued simultaneously with ordinary bonds from the same issuer; in that situation, a premium emerges over time on the secondary market. Green bonds, especially small or nearly riskless ones, are also more closely held than ordinary bonds. These facts are consistent with a simple framework that incorporates assets with nonpecuniary utility.
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Some economic agents derive non-pecuniary benefits from holding green assets.
“Alternatively, another strand of the literature considers that some economic agents derive non-pecuniary benefits from holding green assets (e.g., S. Baker et al., 2022;Fama & French, 2007).”
From A review on ESG investing: Investors' expectations, beliefs and perceptions (2024) · cites this paper as S. Baker et al., 2022
In M. Baker et al. (2022), investor utility depends on the holdings of assets and their environmental scores.
“This is the approach introduced in M. Baker et al. (2022), where investor utility depends on the holdings of assets and their environmental scores.”
From A review on ESG investing: Investors' expectations, beliefs and perceptions (2024) · cites this paper as M. Baker et al. (2022)
An implication of M. Baker et al. (2022) is that investors with tastes for green assets will hold them at higher weights, leading to more concentrated ownership of such assets.
“An implication of their model is that investors with tastes for green assets will hold them at higher weights, leading to more concentrated ownership of such assets.”
From A review on ESG investing: Investors' expectations, beliefs and perceptions (2024) · cites this paper as M. Baker et al. (2022)
Green firms generate lower returns relative to brown firms.
“At the firm level, M.Baker et al. (2022), Bolton and Kacperczyk (2021), Garel et al. (2023) and Hsu et al. (2023), Hong and Kacperczyk (2009), Zerbib (2019) show that green firms generate lower returns relative to brown firms.”
From A review on ESG investing: Investors' expectations, beliefs and perceptions (2024) · cites this paper as M.Baker et al. (2022)
Cites
The effect of pro-environmental preferences on bond prices: Evidence from green bonds
Zerbib, O. D. (2019) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2018.10.012 · Cited by 1,379 · see citing works
Dimson, E., Karakaş, O., & Li, X. (2015) · Review of Financial Studies · doi:10.1093/rfs/hhv044 · Cited by 1,242 · see citing works
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Presidential Address: Sustainable Finance and ESG Issues— <i>Value</i> versus <i>Values</i>
STARKS, L. T. (2023) · The Journal of Finance · doi:10.1111/jofi.13255 · Cited by 474 · see citing works
A review on ESG investing: Investors' expectations, beliefs and perceptions
Kräussl, R., Oladiran, T., & Stefanova, D. (2024) · Journal of Economic Surveys · doi:10.1111/joes.12599 · Cited by 175 · see citing works
- Authors
- Baker, M., Bergstresser, D., Serafeim, G., & Wurgler, J.
- Affiliations
- National Bureau of Economic Research (US)
- Brandeis University (US)
- Harvard University (US)
- Venue
- Annual Review of Financial Economics
- Publisher
- Annual Reviews
- Published
- 2022-11-01
- Volume
- 14
- Issue
- 1
- Pages
- 415-437
- ISSN
- 1941-1367 (ISSN-L)
- 1941-1375
- OpenAlex
- W4290725204
- Cited by
- 357
- References
- 2
- Citations by year
- 2026: 87 · 2025: 107 · 2024: 87 · 2023: 44 · 2022: 25 · 2021: 6 · 2020: 1
- FWCI
- 12.24
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Annual Review of Financial Economics (publishedVersion)
- Digital Access to Scholarship at Harvard (DASH) (Harvard University) (acceptedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Sustainable Finance and Green Bonds
- Social Sciences › Economics, Econometrics and Finance › Finance › Credit Risk and Financial Regulations
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Keywords
- green bonds, green securities, bond pricing, secondary market, corporate green bonds, US bond market
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