An econometric analysis of factors that influence the performance of green bonds in emerging markets
Date
2021
Authors
Atieno, Ogwayo Melissa
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Developing nations are the most vulnerable to the effects of Climate change. This acts as a
hindrance in the fight against poverty and improving the livelihoods of their citizens. Green
bonds were created to finance projects that fight climate change. They are intended to help
developing countries fight climate change while they grow their economies. The perfonnance of
green bonds in developed markets has been analyzed in numerous studies but there exists a
deficiency in the emerging market space. This study involves econometrically analyzing factors
that influence the performance of green bonds in emerging markets. The countries used in this
study are Brazil, Mexico, and South Africa as they have successfully issued these securities.
These factors include macroeconomic and stock market conditions as the independent variables.
The number of active green bonds acts as the dependent variable. The macroeconomic conditions
include short term interest rates, exchange rates, industrial output, and inflation. The
macroeconomic conditions are represented by Treasury bill rates, Real Broad Effective
Exchange Rate, the Industrial Production Index, and Consumer Price Index of the selected
countries. The stock market conditions are represented by the countries' stock indices. Panel data
regressions are used. The model used to evaluate the factors that influence the performance of
green bonds in the selected countries was found to not be jointly significant given the
macroeconomic conditions specified in the regression. The Consumer Price Index is the only
significant macroeconomic variable. The second model sought to identify the implications of
stock market conditions on the performance of green bonds in the selected countries. It was
found that stock market conditions have a positive but insignificant influence on the overall
green bond market in the selected countries. Green bonds issued by corporates are found to be
the most popular in developing countries, but higher amounts are issued by agencies, and
Municipal bonds are seen to pay higher coupons.
Description
Submitted in partial fulfillment of the requirements for the Degree of Financial Economics at Strathmore University