The evolution of pricing performance of green municipal bonds

Abstract

The Evolution of Pricing Performance of Green Municipal Bonds Candace Partridge1,* and Francesca Romana Medda2 1,2Institute of Finance and Technology, University College London, Gower Street, London, WC1E 6BT *Corresponding author: candace.partridge@ucl.ac.uk August 20, 2019 Abstract Green municipal bonds are a novel way to help unlock finance for investment in sustainable and urban infrastructure in the US, however is- suance lags due to negative perceptions of higher cost, lower returns, and greater risk. In this study, we aim to demonstrate that US green munici- pal bond performance is consistent with the returns of general municipal bonds, which can improve investor confidence and increase demand. The performance of this bond sector is assessed with two different approaches: through the creation of a green municipal bond index and benchmarking its performance against an overall municipal bond index; and by look- ing for a price difference between green municipal bonds and their con- ventional counterparts through yield analysis. We found that an index comprised of green muni bonds outperforms the closest equivalent S&P index from 2014-2018, and there is a statistically significant green pre- mium (“greenium”) present in the secondary muni bond market of nearly 5 basis points by 2018. There was no conclusive evidence for the pres- ence of greenium at issue in the primary market, however there are some early signs that this could change. Furthermore we do not observe that green …

Source: pdf_first_chars