News A New Green Bond Pricing Model Proposed – The study empirically demonstrates stochastic behavior of interest rate reduction effects of green bond greenness, boosting green bond issuances in practice in the future. -
Existing studies found a constant interest rate reduction effect, a benefit of green bonds, over time. Still, we expect to assume that it varies over time due to exogenous factors such as COVID-19.
Associate Professor Takashi Kanamura has proposed a new green bond pricing model by employing a stochastic process model of the green bond premium (GBP), which indicates the interest rate reduction effect. Empirical analyses using the US and European green bond indices detected GBPs fluctuating stochastically and converging to a negative value in the medium to long term. In addition, they showed that green bond greenness may amplify the interest rate and liquidity risk mitigation effects of green bonds over crises such as COVID-19. We hope these results will encourage further green bond issuances in practical terms in the future.
The research results were published in the referred journal of the International Review of Financial Analysis (Elsevier, IRFA) on December 3, 2024, as an article titled “Stochastic behavior of green bond premiums.” The IRFA is a Top 10% journal in the field of BUSINESS and FINANCE.
https://doi.org/10.1016/j.irfa.2024.103836