| dc.description.abstract | This research focuses on macroeconomic determinants of green bond yield spreads, using Fixed effects panel regression model. We investigate 21 bonds issued by International Bank for Reconstruction and Development (IBRD) and still actively traded on Luxembourg Stock Exchange. We find highly significant relationship between green bond yield spreads and five macroeconomic factors (CPI, GDP growth, Federal debt, Fiscal balance and VIX). CPI and GDP growth have negative impact on yield spreads, which means higher inflation or GDP growth increases bond prices, thus reducing their spreads. Federal debt, Fiscal balance and Unemployment appear to be positively related to bond spreads. Our panel regression model results support five hypotheses out of six, as we find VIX having negative impact on green bond yield spreads, thus contradicting to academic sources. Nevertheless, VIX performance can be explained by market shock of 2020 as well as non-financial climate change concerns. Our regression reveals 88% of variation in green bond spreads being explained by independent variables. Therefore, we conclude that green bond yield spreads can be explained by the same macroeconomic factors as their conventional counterparts. | |