The Benchmark Greenium
Description
Code and pseudo-data for our paper, "The Benchmark Greenium." The actual bond price and special spread data used in the paper cannot be shared, and has been replaced with pseudo-data. Exploiting the "twin" structure of German government green and conventional securities, we use a dynamic term structure model to estimate a time-varying greenium stemming solely from investors' green values and not their cash flow expectations. This greenium is distinct from the yield spread between the twin securities (the green spread), as the model purifies it from pecuniary and non-pecuniary factors unrelated to environmental concerns. While the green spread correlates with stock market prices, the conventional convenience yield, and temporary demand-supply imbalances, our greenium correlates only with proxies of environmental concerns. We also estimate expected green returns, which incorporate greenium risk.