The greenium dynamics in the financial sector

We investigate the greenium dynamics and its implications for trading strategies using a sample of paired green and brown bonds issued by financial institutions. Based on a robust dissimilarity measure, for each green bond we identify a matching brown bond with similar features to isolate the impact of greenness. Motivated by time-varying greenium dynamics, we construct a long-short portfolio comprising green-brown bond pairs with the largest differences in Option-Adjusted Spreads. The profitability of the proposed active trading strategy is investigated in light of regulatory developments concerning green bond standards in Europe.