Beyond the Hype: Do Bond Investors Forgo Yield When Investing Green?: A Yield Comparison in the Nordic Secondary Bond Market
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- Master Thesis 
Mobilizing public and private capital towards environmentally friendly projects is crucial to reaching the goals set by the Paris Agreement. Green bonds are one type of financial security that seeks to attract investment in sustainable companies and projects. Hence, green bonds can be an essential tool in financing the transition. By comparing yields between green and conventional bonds in the Nordic secondary market, we investigate whether investors forgo yield when investing in green bonds. We use a matching method to compare green and conventional bonds with similar characteristics. This resulted in 119 matched triplets for analysis. We use a two-step regression to investigate the green bond premium in the Nordic secondary market. First, we perform a fixed effect regression on the matched triplets to estimate the green bond premium. Our sample is also divided into sub-samples to investigate if the green bond premium varies between categories. We use the estimated green bond premium for the full sample as a dependent variable in the second regression, to find possible determinants of the green bond premium. Our findings reveal a significant positive green bond premium of 10 basis points. We find that the highest green bond premium appears for NOK-nominated bonds and bonds with an issue amount below SEK 250 million. Additionally, some bond characteristics seem to affect the size of the green bond premium significantly.