Does size matter? Analysis of stock price reaction to green bonds announcements

Abstract

The recent large growth in the green bond market has been shown in previous studies to yield abnormal returns as the market value of the stock reacts to the announcement of green bond issuance. This study uses a sample of 90 observations, of which 61 are from the Swedish market and the remaining 29 from the American market. The sample is used to answer the following hypotheses (i) whether there is room for abnormal returns in these markets attributed to green bonds and (ii) whether there is a correlation between the market reaction and the size of the green bond. To answer the hypotheses, the average cumulative abnormal returns are calculated and further analyzed by regressions and t-tests for significance. The results shows that there are abnormal returns on both markets, the CAAR for the Swedish sample is computed to 0.34% and 0.98% for the American sample. However, no significance could be denoted, which is assumed to be due to the low number of observations included in the study. The difference in the market reaction may be explained by the varying efficiency between the bond and the stock market between the countries. Regarding the second hypothesis, none of the regressions in the study displayed a significant relationship between the bond size and the market reaction measured in CAAR over a 5-day window.