Investor ESG Tastes and Asset Pricing

This study uses security-level investor demand and dynamic pricing information in the primary bond market to examine investor tastes for ESG assets and their pricing effects. We find that green bonds are significantly more oversubscribed than their conventional counterparts offered by the same issuer. Anticipating a stronger demand for green bonds, underwriters propose lower initial offering spreads, and more aggressively tighten their offering spreads after bookbuilding, resulting in green bonds’ lower offering spread (greenium). After controlling for investor demand, the offering spread of green bonds no longer statistically differs from conventional bonds. Our findings support investor-tastes asset pricing models