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Erschienen in:

24.02.2023

Social bonds and the “social premium”

verfasst von: Costanza Torricelli, Eleonora Pellati

Erschienen in: Journal of Economics and Finance | Ausgabe 3/2023

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Abstract

Social bonds (SB) have witnessed an unprecedented increase especially since the outburst of the Covid-19 pandemic, but their performance vs. conventional bonds (CB) has not yet attracted attention in the academic literature. As far as we know, this is the first paper to test the existence, the sign and the determinants of a “social premium”, which we propose here to define as the yield differential between a SB and an otherwise identical CB. To this end we set up a sample of 64 SB aligned with the International Capital Market Association principles and 64 (exactly) matched CB, from October 2020 to October 2021 so as to focus on the peak of SB issuances. Regressions are based on the hypothesis that daily yield differentials between SB and CB may be determined by differences in non-perfectly matched characteristics. Based on the FE specification, which turns out to be preferred vs. OLS and RE both theoretically and empirically, two main results emerge. First, the social premium is significantly explained by differences in liquidity and in volatility, which are, respectively, negatively and positively correlated with the yield differential. Second, on the whole sample, the analysis of the fixed effects proves the existence of a significant and positive social premium that amounts to 1.242 bps. This result is robust to outliers, but differences emerge on subsamples especially in relation to issuer sector, thus pointing to the relevance of the use of proceeds, an issue that deserves further investigation as the SB market becomes more mature.

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Fußnoten
1
The Global Sustainable Investment Alliance (2021) reports that in 2020 sustainable investments reached $35.3 trillion, growing by $13 trillion from 2016.
 
2
The Social Bond Principles (SBP) are “voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Social Bond market by clarifying the approach for issuance of a Social Bond” (ICMA 2021) developed by the International Capital Market Association (ICMA), a non-for-profit association based in Switzerland.
 
3
No municipal bonds are included in our analysis since they have specific characteristics as also in the literature about greenium, where municipal bonds are generally considered separately (i.e., Karpf and Mandel 2018; Baker et al. 2018).
 
4
Callable and puttable bonds present multiple yield measures such as yield to call and yield to worst which complicate comparison between SB and conventional bonds.
 
5
The reason for absence of United States in the set is due to the optionality features of SBs issued on the US market.
 
6
A few changes are made with respect to Bachelet et al. (2019): first, to control for liquidity, for parsimony only bid ask spreads are used, whereby Bachelet et al. (2019) uses also the difference in number of trading days; second, since several bonds employed in the present analysis have a short time series, variances are here calculated in a 10-days rolling window, whereby in the original econometric model \(\Delta \sigma\) is calculated in a 20-days rolling window.
 
7
Since our sample is relatively small, Beck Katz robust estimator is more efficient (Beck and Katz 1995). We also tested for the presence of cross-sectional dependence in our panel by means of the Pesaran (2015) test, which allowed us to conclude that there is no cross-sectional dependence in our data.
 
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Metadaten
Titel
Social bonds and the “social premium”
verfasst von
Costanza Torricelli
Eleonora Pellati
Publikationsdatum
24.02.2023
Verlag
Springer US
Erschienen in
Journal of Economics and Finance / Ausgabe 3/2023
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-023-09620-3

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