Unveiling the Liquidity Greenium : Exploring Patterns in the Liquidity of Green versus Conventional Bonds

While previous studies have mainly focused on the existence of a premium in the yield of green bonds, we test whether green bonds traded in the secondary market benefit from a liquidity greenium, i.e. they are more liquid compared to conventional bonds. To this end, we conduct several tests to identify patterns in both the cross-section and time-series dimensions of our dataset of global bonds issued between 2009 and 2022. We found evidence that green bonds issued by governments and supranationals are more liquid, while this result generally does not hold for corporate bonds, with the exception of those issued by companies operating in the energy sector. Moreover, a liquidity premium for corporate green bonds exists if there is an external verification or alignment with international standards, or a proven environmental reputation of the issuer. In the time series dimension, we found that the liquidity premium of corporate green bonds has increased during periods of higher market illiquidity and after the recent ECB monetary policy strategy in favour of green assets. Finally, we find evidence that the liquidity of conventional bonds improves for firms that announce the issuance of green bonds, but only in the case of multiple issues