The green bond market has gained significant traction over the past few years. In 2019, issuers released $320 billion worth of green bonds, compared to $490 billion in 2023 (Yamaguchi & Ramos, 2024). This study applies the widely used metric Value-at-Risk (VaR) to better understand the risk profile of this relatively new financial instrument. The study forecasts volatility using an ARMA(1,1)-GARCH(1,1) model to simulate VaR. The thesis employs regression analysis to explore higher downside risk and a green premium in the primary Nordic bond market for green bonds. The findings reveal that green bonds carry higher downside risk, as evidenced by significantly larger VaR values for green-labeled bonds. Additionally, the study identifies a lower yield to maturity associated with green bonds compared to conventional bonds, indicating a green premium in the primary Nordic bond markets. This research contributes to the growing body of literature on green finance, providing valuable insights for investors regarding the risks and yields associated with green bonds. The findings of this study are essential since ESG is a crucial topic for today’s investors, and a green premium encourages firms to invest in more sustainable projects. If proof of investors willingness to pay a premium for sustainability was confirmed, firms might undertake more climate-friendly projects. Further research should explore alternative risk metrics and apply these metrics across different regions.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:lnu-130156 |
| Date | January 2024 |
| Creators | Håkansson, Felix, Ehn, Joel |
| Publisher | Linnéuniversitetet, Institutionen för nationalekonomi och statistik (NS) |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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