We empirically investigate how greenness is priced in green bond markets. Using liquidity-adjusted yield premium of green bonds over their synthetic conventional bonds, we explore determinants of green bond premium. Our evidence shows that on average there is no significant yield premium or discount on green bonds compared to their paired conventional bonds. However, green bonds that are certified by an external reviewer and CBI enjoy green discounts of 7 bps and 9 bps, respectively. Our findings suggest that developing universally accepted standard and definition of greenness will improve the pricing of green bonds and foster the development of green bond markets.
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