Do green bonds move markets? : Share price effects in emerging economies.

Abstract

Under the umbrella of sustainable finance, green bonds have gained significant attention. The increasing interest in sustainable investments has drawn a group of investors who focus on environmental responsibility. Globally the issuance of green social, sustainability and sustainability linked (GSSS) bonds reached US 1 trillion dollar in 2024. This thesis focuses on investigating the effect of green bond announcement on the share price of companies from emerging economies. The countries under investigation are China, South Korea, India, Malaysia, Indonesia, South Korea and Brazil. There are 80 unique non-financial firms with 99 announcements from 2019 to 2024.

This study follows some of the reputed papers like Flammer 2021 and Tang and Zhang 2020 to form it’s methodology. An event study methodology is employed to estimate cumulative abnormal returns (CARs) across multiple event windows, using a 150-day estimation period and the market model to derive expected returns. Jarque-Bera statistics shows the dataset deviates from normal distribution hence Wilcoxon Signed Rank Test was used instead of conventional parametric t-test ensuring robust evaluation of market reactions.

Most of the papers find positive market reaction on developed economies. This study aims to fill the research gap by studying countries from emerging economies overlooked by past studies. The result of this thesis finds moderately significant negative reaction to wider event windows like [-10,10] and [-5,5] but results are not significant for shorter event windows like [-1,1] and [0,1]. The negative reaction could be because of investors viewing green bonds as financial burden or it could be because of green washing concern.

To see why market reactions differ across different firms this study runs a cross-sectional OLS regression using both bond specific and firm specific variables. The test shows multicollinearity is at an acceptable level. This means the results are statistically reliable. These findings contribute to the growing literature on green bond and suggest that not everywhere green bond announcement generate significant positive reaction.