Signaling Green - The Effects of the ECB’s Asset Purchase Programme on the Green Bond Market
Abstract: Purpose: The purpose of this study is to investigate whether the ECB’s Asset Purchase Programme has affected the yield spread of eligible green bonds. One further aim is to investigate if the partial effect of bond liquidity on the yield spread among these green bonds is associated with their eligibility for purchase by the ECB Asset Purchase Programme. Methodology: The econometric methodology is based upon a panel data setup, where OLS-regressions with random effects were conducted. An instrumental variable is introduced, as well as an interaction term to test for endogeneity and partial effects. Lastly, four gradual control variables are included as a robustness check to stress-test the model specifications. Empirical Foundation: The sample of this study consists of 484 green bonds issued from 2013 to 2019, that all comply with the Green Bond Principle (GBP) framework. Conclusions: This study finds a significant reduction of the yield spread among ECB-eligible green bonds of approximately -76 bps during the study period. Furthermore, a significant decrease is found in partial effects of the liquidity on the yield spread, suggesting that the APP has increased the trading liquidity among eligible green bonds.
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