Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/280929 
Year of Publication: 
2023
Series/Report no.: 
CFS Working Paper Series No. 715
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
We propose a model with mean-variance foreign investors who exhibit a convex disutility associated to brown bond holdings. The model predicts that bond green premia should be smaller in economies with a closer financial account and highly volatile exchange rates. This happens because foreign intermediaries invest relatively less in such economies, and this lowers the marginal disutility of investing in polluting activities. We find strong empirical evidence in favor of this hypothesis using a global bond market dataset. Exchange rate volatility and financial account openness are thus able to explain the higher financing costs of green projects in emerging markets relative to advanced economies, especially when green bonds are denominated in local currency: a disadvantage that we can call the "green sin" of emerging economies.
Subjects: 
Green bonds
Greenium
Exchange rate volatility
Financial openness
Original sin
JEL: 
F21
F30
F31
G11
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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