Essays on Sustaianble Finance
This cumulative dissertation examines the role of Sustainability-Linked Bonds (SLBs) in financial markets, focusing on their pricing, the stock market reaction to their issuance, and their potential to hedge climate risk. Across three empirical papers, the thesis applies advanced econometric methods to provide novel insights into sustainable finance. The first paper investigates the yield differential between SLBs and conventional bonds in the primary market, using Nelson–Siegel–Svensson yield curve fitting and a synthetic matching approach to isolate the “sustainability premium.” Fixed effects panel regressions reveal that SLBs often price at a yield discount, influenced by bond, issuer, and ESG-related characteristics. The second paper conducts an event study on SLB issuance announcements, estimating abnormal returns with the market model. Positive and significant short-term cumulative abnormal returns suggest that SLB issuance signals sustainability commitment to investors. The study also discusses price pressure as an alternative explanation. The third paper explores the connectedness between climate risk indicators (physical and transition risk) and ESG/conventional assets using Diebold–Yilmaz spillover measures, Quantile VAR, Quantile-on-Quantile Connectedness, and DCC-GARCH models. It evaluates the hedging effectiveness of ESG assets under climate risk, finding that sustainable bonds moderately hedge transition risk but offer limited protection against physical risk. Overall, the thesis contributes to the literature by combining innovative modeling techniques with a focus on SLBs and climate risk, offering both academic and practical implications for sustainable finance, portfolio management, and climate risk mitigation.
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