Green Bonds vs Conventional Bonds : Market efficiency test on green bond funds vs conventional bond funds when faced with external shocks causing stress

Abstract: This thesis investigates the effects of environmental and economic disasters on green bond funds and conventional bond funds during the years 2016-2020. The research emphasizes how a saver could act when comparing green bond funds and conventional bond funds for investing purposes. Based on previous research, there are indications that green bonds and conventional bonds differ in pricing despite having the same economic quality. This research investigates bond funds rather than singular bonds. The tests in this study are quantitative based on hypothetico-deductive approach. Based on hypothesis testing through the Mann-Whitney-U test, green bond funds and conventional bond funds act similarly during events of stress, and there is no statistically significant evidence which proves that investing solely in either of the two groups is better than the other. In accordance to the Efficient Market Hypothesis, this thesis suggests that the bond funds act similarly because in essence they are the same financial instrument and act according to their ratings and qualities. From a saver’s perspective, it is therefore better to look at the quality and rating of a fund rather than what category of fund it is.