This thesis studies the yield differential between green bonds and conventional bonds, the so called green premium or "greenium". By deriving a theoretical model that includes investors' preferences for green assets, two hypothesis are formulated: There exists a negative green bond premium and The negative premium is larger in absolute terms in countries with high environmental performance. In order to estimate the premium, synthetic conventional bonds are constructed having the same characteristics as the green bonds. Two different matching methods are used to construct the synthetic bonds, one based on maturity and one based on correlation. The findings of this study suggest a significant negative green premium between -0.29 and -0.78 basis points. Also, the green premium is more than twice as large, in terms of absolute value, if the issuer is based in a country which has a high environmental performance.

Green bonds present a promising tool enabling investors in fixed-income mar- kets to finance environmental projects. Yet, the pricing of green bonds with respect to conventional bonds remains an open question. This thesis in- vestigates the existence of a yield differential between green and equivalent conventional bonds in the secondary market. By matching green bonds with synthetic conventional bonds and performing a fixed effects panel regression of the yield spread, we find evidence of a small negative premium associ- ated with green bonds ("green premium"): as a result of high demand from value-seeking investors, the yield of green bonds is on average 1.12 basis points lower than that of their conventional counterparts. The variation in the magnitude of the green premium with bond characteristics is further examined through a cross-sectional regression. We show that external ver- ification of the bond's green credentials and assurance on its post-issuance allocation report significantly increase the estimated green premium. Finally, the green bond's yield seems to decrease in case proceeds are used to finance new projects, while refinancing existing projects results in an increase in the bond's yield. Our findings provide valuable insights into the field of green bond pricing. While the...